A company merger can be an important step for businesses seeking to expand, restructure operations or combine with another company. In Indonesia, however, a merger is only one of several ways businesses can change their corporate structure.
An investor may acquire another company, two companies may merge with one surviving entity, or several companies may consolidate to establish a new legal entity.
While these transactions may appear similar from a commercial perspective, they have different legal consequences. For foreign investors and companies operating in Indonesia, understanding the distinction is important because the structure can affect ownership, assets, liabilities, contracts, employees and the legal existence of the companies involved.
The principal framework for a company merger in Indonesia is the Limited Liability Company Law, Law No. 40 of 2007 on Limited Liability Companies, as amended by subsequent legislation.
What Is a Company Merger?
A company merger, or penggabungan, occurs when two or more companies combine, with one company continuing as the surviving legal entity.
The company that merges into the surviving entity ceases to exist as a separate legal entity, while its assets, liabilities, rights and obligations transfer to the surviving company in accordance with the applicable legal process.
For example:
Company A + Company B to be Company A
When merger occurs, Company A survives, while Company B becomes the merged company and ceases to exist as a separate legal entity.
This is the key distinction between a company merger and an acquisition. In an acquisition, the acquired company generally continues to exist even though ownership or control changes.
Why Merge Your Company?
A company merger can be driven by several commercial objectives. Businesses may want to combine resources, expand market access, reduce duplicated costs or strengthen their competitive position.
A merger can also create synergy between businesses with complementary operations. By bringing companies under a single entity, shareholders may seek greater operational efficiency and a more integrated management structure.
For foreign investors considering a merger in Indonesia, the commercial rationale should be assessed alongside the legal and regulatory implications.
Type of Merger
- Horizontal: Competitors in the same industry combine.
- Vertical: Businesses at different stages of the same supply chain combine.
- Conglomerate: Unrelated businesses combine to diversify.
- Congeneric: Businesses in the same sector with related products or markets combine.
Process of Merging Business in Indonesia
The merger process requires careful corporate and legal planning.
The parties will generally need to assess the proposed structure, conduct due diligence, negotiate the transaction terms and prepare the relevant corporate documentation.
A merger plan is an important part of the process. It can address matters such as the structure of the transaction, treatment of assets and liabilities, shareholders, employees, contracts and other rights and obligations.
The companies must also consider the necessary shareholder approvals and applicable government procedures before the merger is completed.
The exact requirements can vary depending on the companies involved, their business activities and the regulatory framework applicable to the transaction.
Company Merger vs Acquisition
A company merger and acquisition are often discussed together as M&A, but their legal outcomes are different.
In an acquisition, one party obtains control of another company, commonly through a share purchase. The acquired company remains a separate legal entity.
In a company merger, one company combines with another and the company being merged ceases to exist as a separate entity.
This difference can have significant implications for valuation, liabilities and transaction negotiations.
For an acquisition, due diligence helps an investor understand the risks attached to the company being purchased. For a merger, the parties must consider how the participating companies’ assets, contracts, employees and obligations will be transferred or treated following the transaction.
What Is Consolidation?
Consolidation, or peleburan, is another form of corporate restructuring.
Unlike a company merger, there is no surviving original company. Instead, two or more companies combine to establish a new legal entity.
For example:
Company A + Company B → New Company C
Company A and Company B cease to exist, while Company C becomes the new legal entity.
A consolidation may therefore be appropriate where shareholders want to create an entirely new corporate identity rather than have one existing company survive.
Company Merger and Acquisition vs Consolidation
| Company Merger | Acquisition | Consolidation | |
| Structure | Companies combine | One party obtains control | Companies combine into a new entity |
| Existing company survives? | At least one | Yes | No |
| New company created? | Generally no | No | Yes |
| Assets and liabilities | Transfer to surviving company | Generally remain with acquired entity | Transfer to new company |
| Main objective | Combine businesses | Obtain control | Create a new corporate structure |
Business Competition and Regulatory Considerations
A company merger may have implications beyond corporate law.
Businesses should consider business competition rules where the transaction could affect market concentration or competition. Depending on the circumstances, Indonesian competition requirements may need to be assessed.
The parties should also review sector-specific regulations, investment restrictions, licences and tax obligations.
For foreign investors, these considerations can be particularly important when a merger changes the ownership structure of an Indonesian company or affects a PT PMA.
What Approvals Does a Company Merger Require?
A company merger can require approval from shareholders through a General Meeting of Shareholders (RUPS), together with notifications, approvals or filings with relevant government authorities where applicable.
The Ministry of Law and Human Rights has an important role in Indonesia’s corporate administration and the legal status of companies.
A merger must also take into account creditor protection, employee rights, contracts, tax obligations and other statutory requirements.
Because the consequences of a merger extend across the business, companies should assess these matters before signing definitive agreements or implementing the transaction.
Is a Company Merger Right for Your Business?
There is no single structure that suits every business.
A company merger may be appropriate when two businesses want to combine operations under a surviving company and pursue greater efficiency or commercial synergy.
An acquisition may be more suitable when an investor wants control of an existing company while preserving its separate legal identity.
A consolidation may be considered when the parties want to establish an entirely new legal entity.
For businesses considering a company merger in Indonesia, the decision should therefore be based on both commercial objectives and the legal consequences of the proposed structure.
Process Your Merger in Indonesia with Lets Move Indonesia
A company merger is a strategic business decision, but it is also a complex legal transaction. Its consequences can affect ownership, management, assets, liabilities, employees, contracts, tax and regulatory compliance.
Lets Move Indonesia provides professional Legal and Business Setup Consultation, Tax Consultation and Immigration Consultation in Indonesia and ASEAN for foreign nationals, investors and businesses navigating the region’s regulatory environment.
Whether you are considering a company merger, acquiring an Indonesian business or restructuring an existing PT PMA, professional advice can help assess the proposed structure and identify legal, tax and regulatory considerations before the transaction moves forward.
Speak with our consultants today and claim your complimentary one-hour consultation.
