Can Liability for Company Losses Be Imposed on the Personal Assets of the Directors?

As a general rule, a person who holds shares in a limited liability company cannot have their personal assets charged for the company's losses. This is regulated in Article 3 paragraph (1) of Law Number 40 of 2007 on Limited Liability Companies (the Limited Liability Company Law, UU PT), which reads: “A shareholder of the Company is not personally liable for engagements made in the name of the Company and is not liable for the Company's losses in excess of the shares held.”

However, this may be set aside under Article 3 paragraph (2) of the Limited Liability Company Law, which states that the provisions of paragraph (1) do not apply if:

1. 1.the requirements for the Company as a legal entity have not been or are not fulfilled;
2. 2.the shareholder concerned, directly or indirectly, in bad faith exploits the Company for personal interests;
3. 3.the shareholder concerned is involved in an unlawful act committed by the Company; or
4. 4.the shareholder concerned, directly or indirectly, unlawfully uses the Company's assets, with the result that the Company's assets are insufficient to settle the Company's debts.

Based on the above provisions, liability of personal assets for the company's losses can be set aside through the doctrine of piercing the corporate veil, if an officer of a company organ who caused losses to the company satisfies the elements or conditions above, so that their personal assets may be charged for the company's losses.

The conditions that must be met for the personal assets of a shareholder, or a person holding office in a company organ, to be held liable for the company's losses are regulated in Article 3 paragraph (2) of the Limited Liability Company Law. Article 3 paragraph (2), which adopts the doctrine of piercing the corporate veil, is based on Article 14 paragraph (1), Article 92 paragraph (2), and Article 114 paragraph (1) of the Limited Liability Company Law, namely:

1. 1.Under Article 14 paragraph (1) of the Limited Liability Company Law, where the requirements for the company as a legal entity have not been or are not fulfilled, for example the company's articles of association have not been ratified or have not been announced in the State Gazette, all members of the board of directors, together with all founders of the company and all members of the Board of Commissioners, are jointly and severally liable for the legal acts performed by the company.
2. 2.Article 92 paragraph (2) of the Limited Liability Company Law essentially explains the ultra vires principle, namely acts of the Board of Directors outside the purposes, objectives, and business activities of the Company as determined in the articles of association, including acts outside the company's purposes and objectives, acts done for personal interest, and acts outside the authority granted to them under the applicable provisions.
3. 3.In addition, where the board of directors violates the principle of performing its duties in good faith and with full responsibility for the interests and business of the Company (fiduciary duty), each member of the Board of Directors is liable down to their personal assets. The fiduciary duty principle also applies when the company goes bankrupt. This is regulated in Article 104 paragraph (2) of the Limited Liability Company Law, which provides that if bankruptcy occurs because of the negligence or fault of the board of directors and the Company's assets are insufficient to cover the losses resulting from the bankruptcy, the members of the Board of Directors are jointly and severally liable for those losses.

Based on this, in essence personal assets may be charged for the company's losses if:

1. 1.The requirements for the Company as a legal entity have not been or are not fulfilled;
2. 2.The ultra vires principle is violated; and
3. 3.The fiduciary duty principle is violated.