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Advances in Social Sciences Research Journal – Vol. 10, No. 2
Publication Date: February 25, 2023
DOI:10.14738/assrj.102.14024.
Suhardiman, D., & Pramono, N. (2023). Limited Liability Company: Resolving Demission State of Directors and Board of
Commissioners Issue Through Company Law. Advances in Social Sciences Research Journal, 10(2). 331-341.
Services for Science and Education – United Kingdom
Limited Liability Company: Resolving Demission State of
Directors and Board of Commissioners Issue Through Company
Law
Daniel Suhardiman
Universitas Pelita Harapan, MH Thamrin Boulevard 1100, Tangerang
Nindyo Pramono
Universitas Gadjah Mada, Bulaksumur, Daerah Istimewa Yogyakarta
Abstract
The Directors and Board of Commissioners are the two main organs that carry out
the management and supervisory functions of the company. Based on Law No. 40 of
2007 concerning Limited Liability Companies ("Law No. 40/2007"), the two organs
of the company have a term of office for a certain period of time as stipulated in
Article 94 paragraph (3) and Article 111 paragraph (3) of Law No. 40/2007.
However, Law No. 40/2007 does not definitively determine the length of term of
office that can be held by the Directors and Board of Commissioners. Therefore, in
practice the term of office for the Board of Directors and Board of Commissioners
varies according to the articles of association of each company. Obstacles that may
occur in the practice of running a company are obstacles in reappointing or
replacing Directors and Commissioners whose term of office has ended. This is due
to the absence of preventive arrangements in terms of the reappointment or
replacement of theDirectors and the Board of Commissioners whose term of office
has ended due to a deadlock in holding the General Meeting of Shareholders
("GMS"). The Directors and Board of Commissioners will be in a state of demission
and will no longer be able to act for and on behalf of the Company. This study aims
to discuss and analyze the company's legal stance in dealing with the issues of the
Board of Directors and Board of Commissioners who are in a state of demission.
Keywords: Limited Liability Company, Company Organs, Demission State.
INTRODUCTION
Limited Liability Companies have organs that carry out management and supervisory
functions, namely the Directors and the Board of Commissioners. Law No. 40 of 2007 on Limited
Liability Companies (“Law No 40/2007”) stipulates that the two organs are appointed for a
certain period of time and can be re-appointed through a General Meeting of Shareholders
(“GMS”) decision. Furthermore, Law No. 40/ 2007 also mention that when the term of office of
the Directors and the Board of Commissioners has ended, the Directors and Board of
Commissioners are no longer entitled to act for and on behalf of a Limited Liability Company.
In such case, then all actions taken outside of their position will become personal responsibility.
In connection with the term of office of the Directors and the Board of Commissioners, it is
found that there is a legal vacuum which contained risks to the management of the company.
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 2, February-2023
Services for Science and Education – United Kingdom
The legal vacuum concerns the issue in the event when the Directors and Board of
Commissioners are on state of demission. In simple terms, demission state is a condition where
the term of office of the Directors and Board of Commissioners has ended, however both
company organs have not been re-appointed or replaced with new management and are still
running the management of the company. The demission state of all members of the Directors
and Board of Commissioners may occur mainly due to the failure to convene the GMS. The GMS
may fail to be held due to the negligence of the shareholders or disharmony between the
shareholders which results in deadlocks in every decision-making.
Technically, the aforementioned issue can be even more complicated if the Limited Liability
Company has 50-50 share ownership. Moreover, it becomes even more difficult since there are
no provisions governing the demission state in Law No. 40/2007. As a result, there will be a
vacuum in the company's management and the company's activities will be paralyzed. Such
conditions have not been anticipated by the legislators of Law No. 40/2007 and thus creates
uncertainty in the management of the Company. Nonetheless, as the main guideline governing
company law, Law No. 40/2007 has a set of instruments to resolve problems that arise in the
practice of running the company, including the issues of demission state of Directors and Board
of Commissioners.
METHODS
This research is normative legal research supported by interviews with informants. The nature
of this research is descriptive. The approach used in this research is descriptive analysis and
statutory approach. The primary data in this study were obtained through interviews with
informants, while the secondary data from this study were obtained through a literature study
which was analyzed using qualitative methods.
RESULTS AND DISCUSSION
Limited Liability Company’s Management Board Absence due to Demission State of
Directors and Board of Commissioners
Directors and Board of Commissioners are the two organs of a Limited Liability Company which
hold essential functions in the course of the company's business activities. Directors hold the
management function which includes legal actions which are explicitly included in the aims and
objectives and business activities of the company as stipulated in the articles of association
(“AoA”). In addition to that, legal actions that according to custom, fairness and decency can
support the company's business activities. These actions include the appointment and
dismissal of workers or in the case of buying a plot of land for the purposes of a place of
business. The function of the Board of Commissioners in a Limited Liability Company is to
supervise and provide advice to the Board of Directors. The supervisory and advisory functions
are carried out so that the company in carrying out its business activities does not commit
unlawful acts that may harm the company or its shareholders.
1
The implementation of management and supervisory functions by the Directors and Board of
Commissioners as organs of a Limited Liability Company is the main key for a company to carry
out its business activities. All actions carried out by the company as a legal entity are basically
1Ridwan Khairandy, 2014, Hukum Perseroan Terbatas, FH UII Press, Yogyakarta, pp. 242-243. See also ibid, Article
108 paragraph (1) andparagraph (2).
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Suhardiman, D., & Pramono, N. (2023). Limited Liability Company: Resolving Demission State of Directors and Board of Commissioners Issue
Through Company Law. Advances in Social Sciences Research Journal, 10(2). 331-341.
URL: http://dx.doi.org/10.14738/assrj.102.14024
carried out by the organs within it. Normatively, the law recognizes that there are legal subjects
other than humans who can bear rights and perform legal actions. The legal subject is a legal
entity. Otto von Gierke with his Organ Theory states that a legal entity is an entity whose will is
formed through the mediation of the organs within it (eine leiblichgeistige heit). 2 Thus,
alldecisionmade by the organs of the legal entity is the will of the legal entity. Furthermore, Otto
von Gierke stated that the functioning of a legal entity is equated with humans who can carry
out their daily activities because there are organs that support their lives.3In connection with
the operation of Limited Liability Company, a company can only operate properly if the
company's organs can function properly.
The absence of the Directors and Board of Commissioners will have a fatal impact on the
internal company. The vacant position of the organ holding the management and supervisory
functions of the company will directly paralyze the company's business activities. The paralysis
of the company's activities can result in several internal company issues. Among the most
important internal problems is that a Limited Liability Company under certain circumstances
may experience problems in carrying out its obligations to workers. In this regard, the
company's obligations in fulfilling the rights of workers including paying the workers’ salaries.
If the company fails to make payment, this can result in a strike action which will have an impact
on decreasing the company’s productivity.4 In short, the paralysis of the company's activities
due to vacancies in the positions of organs that carry out management and supervisory
functions will have an impact on internal problems that will affect the company's productivity.
In such case, the worst risk that may occur is that the company completely stops operating. If
suchcondition happens, the impact will be far-reaching and could even disrupt the stability of
the national economy.
In relation to the disturbance of the company's activities, the issues that arise can reach into
external aspects. External issuesmay cause a wider impact than internal issues due to the
involvement of third parties. However, internal problems also cannot be ignored. The main
external problems include the Company’s image which will get a negative stigma from the
business community which includes principals, partners, colleagues, suppliers and consumers.
Furthermore, the companywill not be able to carry out their obligations to their creditors. The
company will not be able to make any payment for the tax since a companythat is no longer
operating or unable to carry out its business activities do not have the ability to pay its taxes.
It should be noted that the issues that may arise are not only in the field of taxation. In carrying
out its business activities, Companies also deal with credit facilities obtained through financial
institutions, which in general are banks. If the company's business activities are forced to stop,
then the company will experience financial distress, so that its ability to fulfill its obligations
will be hampered and non-performing loan can occur. Non-performing loan can result in a
company going bankrupt due to its inability to pay the debtsas they fall due.5 Therefore, issues
with external third parties may threaten the continuity of the company's business.
2Riduan Syahrani, Syahrani, Riduan, (1985), Seluk Beluk dan Asas-asas Hukum Perdata, Alumni, Bandung, pp. 28.
3Ibid.
4Hesty Diyah Lestari, 2011, “Director’s Duty to Employees: Co-Relation Between Corporate and Labour Laws”,
JurnalMimbar Hukum, Special Edition, pp. 60.
5Hadi Shubhan, 2008, Hukum Kepailitan Prinsip, Norma, dan Praktik di Peradilan, Kencana, Jakarta, pp. 88.