Individual Limited Liability Company, an Opportunity for MSME Actors to Go Upmarket

The presence of Law Number 11 of 2020 is a breath of fresh air for Micro, Small, and Medium Enterprises (MSMEs). This is because, through this regulation, MSME players can form a special legal entity, called an Individual Limited Liability Company (LLC). By having a legal entity, MSME players will get solutions to various problems that they have had to face so far. 

So, it cannot be denied that MSMEs are an important pillar of the Indonesian economy. This can be seen from their contribution to the total Gross Domestic Product (GDP), the level of labor absorption, to encourage their ability to absorb domestic investment.  

According to the Ministry of Cooperatives and SMEs, the number of MSME players in Indonesia currently reaches 64.2 million with labor absorption reaching 97% of the total workforce. Meanwhile, the contribution of MSMEs to the national GDP reached 61.07 percent or IDR 8,573.89 trillion. 

Sadly, despite their crucial role, MSME players are still faced with various structural problems that prevent them from growing. One of the problems they often face is legality. 

This is because without having strong legality, MSMEs will find it difficult to access capital and are threatened with other legal issues such as Intellectual Property Rights issues. Especially when information technology is increasingly developing which forces MSME players to transform from conventional to digital businesses. 

Getting to know an Individual Limited Liability Company 

Specifically, the provisions regarding individual LLCs that are triggered in the Job Creation Law are in the ease of doing business cluster. Then it is regulated in more detail in Government Regulation (PP) Number 7 of 2021 on Ease, Protection, and Empowerment of Cooperatives and Micro, Small and Medium Enterprises. 

Regardless of the pros and cons that occur, the existence of an Individual LLC is expected to answer the problems of MSME players who want to establish a business entity, without the hassle of following formal procedures such as when creating a regular limited liability company. 

Because, to form an Individual LLC, an MSME player does not need to use the services of a notary deed, without having to have a high initial capital, business partners, and shareholders as well as company management and supervision through the Commissioner and General Meeting Shareholders (GMS) system.  

In fact, MSME businesses can easily access the registration process in the system prepared by the Directorate General of Administration of General Laws (AHU) of the Ministry of Law and Human Rights of the Republic of Indonesia.  

In addition, it is enough to prepare a Residential Identity Card (KTP), personal Taxpayer Identification Number (NPWP), email account, and business identity. As well as money in the amount of IDR 50,000 which will be paid as Non-Tax State Revenue (PNBP). 

If these requirements are already available, business actors only need to apply for registration independently through the facilities provided by the Ministry of Law and Human Rights, namely through the AHU Individual Company account in the https://ahu.go.id/ system. Furthermore, business actors only need to follow the steps and fill out the form.  

After registering an Individual Company, the business actor will obtain an Individual Company Establishment Statement document which has the same position as the notarial deed of an ordinary (non-individual) LLC.

In addition to the Company Establishment Statement document, business actors will also have a Registration Certificate of Individual Company Establishment from the Ministry of Law and Human Rights, which has the same function as the Decree of the Minister of Law and Human Rights document of an LLC.  

By obtaining this Certificate of Registration of Establishment, Individual LLC has become a legal entity legally. The process of registering an Individual LLC is also complemented by the process of registering a Tax ID Number for the business. So that business actors do not need to go to the Tax Office separately.  

Furthermore, MSME business actors can immediately take care of licensing documents for their business through the OSS system which can be accessed online, through the https: www.oss.go.id channel, to obtain a Business Identification Number (NIB) and Business License documents.   

Obligations and Consequences 

However, there are several things that business actors must consider before establishing an Individual LLC. Especially, in relation to the obligations and other consequences of establishing an Individual LLC.  

First, due to its independence, the existence of an Individual LLC cannot be maintained if there are third parties who want to enter the management of the company, either as shareholders or administrators. Thus, when there are other shareholders and administrators, then by law the status of an Individual LLC changes to a regular LLC.  

The change of status from an Individual LLC to a regular LLC must be done through a Notarial Deed. Then, automatically through a shareholder resolution having the same legal force as a general meeting of shareholders, dissolve or liquidate the Individual LLC. 

This process seems easy because it only fills in the electronic format of the Dissolution Statement through the AHU system. However, technically, this change is also accompanied by formal and technical procedures to revoke NIB, business license, Tax ID number, and close bank accounts.  

Second, because it is owned solely or by one person, Individual LLC has a GMS mechanism. Thus, the supervisory function of company management will be difficult to carry out. Considering the possibility of mixing the company's assets with those of the owner.

Thus, concerns arise that the establishment of an Individual LLC could be used as a method for company owners to use the company for personal interests which is against the law—for example, using company assets, either directly or indirectly, for personal interests because of its sole proprietorship nature.

Third, Individual LLC also has the obligation to make simple financial reports and submit them electronically to the Ministry of Law and Human Rights' AHU system. After submitting the financial report, the Ministry of Law and Human Rights will provide proof of receipt of the financial report, and business actors will avoid these sanctions.

However, if this obligation is not fulfilled, then there are sanctions for business actors, namely written warnings, termination of service access rights, and even revocation of legal entity status.  

Fourth, Individual LLCs are also required to fulfill their tax obligations. The tax provisions attached to Individual LLCs are equal to MSME actors who have gross revenue below IDR 4.8 billion a year. 

Therefore, the amount of Income Tax paid is 0.5% of the revenue value. The provision is as stipulated in Government Regulation Number 23 Year 2018 on Income Tax on Income from Business Received or Obtained by Taxpayers with Certain Gross Revenue.  

Meanwhile, if the revenue obtained by an Individual LLC turns out to exceed the revenue above IDR 4.8 billion in one tax year, it will be subject to an income tax rate of 22% and is obliged to organize complete bookkeeping, like a regular LLC, apart from the obligation to submit financial reports which is the obligation of Individual LLC in the AHU system. 

Not Spared from Criticism

With the various conveniences and benefits offered, the existence of Individual LLCs is also not free from criticism. One of the opposing opinions that arises is that Individual LLCs are considered to be contrary to the concept of a company which is defined as a capital alliance. 

This opinion is strengthened by the absence of a clear definition of Individual LLC in the Job Creation Law or Government Regulation Number 7 of 2021. Therefore, its existence must be evaluated.

However, these two legal umbrellas are already in effect and there is nothing wrong with MSME actors making the best use of these provisions. So that Indonesian MSMEs can move up a class, strengthened by a clear legal entity. (ASP/KEN)

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.