Sole Proprietorship in Indonesia

Sole Proprietorship in Indonesia is called a Usaha Dagang.  It is one of Indonesia's most common business structures to set up. It is also the most simple business structure to incorporate - a sole proprietorship requires only one person; thus, the business and person become the entity.

Who can be a Sole Proprietor in Indonesia?

Sole proprietors are usually small entrepreneurs with small capital to start their ventures. Business owners who have limited manufacturing capability and cannot scale can choose to begin a sole proprietorship in Indonesia.

As a rule, an Indonesian citizen who is at least 17 years old and possesses legal competence can establish a sole proprietorship. They can do so by completing the “Statement of Establishment'' in the local language - Indonesian (Bahasa Indonesia) - and submitting it online to the Ministry of Law and Human Rights. 

The form includes the following information:

  • ~Name and place of domicile
  • ~Period of establishment
  • ~Purposes and objectives as well as business activities
  • ~Amount of authorized capital issued capital, and paid-up capital
  • ~Nominal value and number of shares

Sole proprietors can change the status of their sole proprietorship anytime to a Limited Liability Company. The change must be brought forth if:

  • ~The business has more than one shareholder
  • ~The person or entity no longer meets the criteria of a small business

Differences Between Sole Proprietorship and Limited Liability Company (PT)

Sole Proprietorship Limited Liability Company (PT)
Who owns them? Individual At least two owners or shareholders
Presence of a legal entity A legal entity not required A legal entity is required
Responsibility Unlimited, to personal property The responsibility extends to the number of shares owned by each shareholder
Owner and management functions A single owner takes care of all business functions The management consists of shareholders who are liable for all business functions, risks and decisions

Benefits of Sole Proprietorship in Indonesia

Different business structures offer different benefits. For instance, a representative office can help foreign companies to set up liaison teams and test markets in Indonesia. 

Similarly,  a sole proprietorship is founded for specific purposes. Here, we list the benefits of starting a sole proprietorship in Indonesia.

Easy to register

Apart from requiring a notary to register your entity, you do not have hard-to-meet requirements and complex procedures to set up a sole proprietorship.  

Maximum control and liability

A sole proprietorship offers complete control of the entity to the company's owner. This way, the proprietor is entirely responsible for any success or failure of the entity.

Moreover, they do not have to face any penalties or losses.

Entitled to maximum profits

Although all risks fall upon the owner, they are also the biggest beneficiary of this as the owner banks all gains made by the entity. 

Low incorporation costs

There are no expenses around registration and hidden charges in Indonesia. Incorporating a sole proprietorship is inexpensive.

Privacy

Since there are no partners for the entity, sole proprietors do not run the risk of privacy issues. All information about expenses, profits, and losses can be kept confidential.

Easy to exit 

Sole proprietorships are easy to exit. When the entity incurs losses, sole proprietors can quickly shut it down without many formalities. This is because their dissolution does not require the approval of external stakeholders.

Documents Required for Registering Your Business in Indonesia

Four documents are required to incorporate a sole proprietorship in Indonesia. 

  • ~Name
  • ~Employee Identification Number
  • ~Business license
  • ~Trademark

Any form of business registration in Indonesia cannot be fully completed online. Employers will need to hire a local notary to help them throughout the process of verifying the documents. The notary validates and submits the documents to the local authorities.

How to Register a Sole Proprietorship Company in Indonesia

Employers have two ways to register a sole proprietorship:

1. Licensed Sole Proprietorship: When the individual business has an operational permit from a technical department, then this type of registration is ideal. For example, suppose an individual company is engaged in trade. In that case, it can have licenses such as the Trade Business Registration Certificate (TDUP or Tanda Daftar Usaha Pariwisata) and the Business Trading License (SIUP or Surat Izin Usaha Perdagangan).

2. Unlicensed Sole Proprietorship: Ideal for businesses where minimum startup capital goes into investment. As the sole stakeholder, the owner is entitled to the liberty of deciding on the minimum capital. 

Now that we have established the types of registrations involved in setting up a sole proprietorship in Indonesia, here’s how you can register an entity. 

  • ~Name: Sole proprietors must register a name that is not vulgar and does not hurt local sentiments. Names must be trademarked to prevent fraud and redundancy
  • ~Employer Identification Number: Next, sole proprietors have to register for an Employer Identification Number
  • ~Business license: A business license provides legal validation of the product or service. Sole proprietors must acquire a business license before registering their business

Risks Associated Around Owning a Sole Proprietorship

No business is risk-proof. Here are a few risks employers must be aware of before registering a sole proprietorship. 

Personal liability and risks

Since there are no other founders or shareholders, the owner is responsible for non-compliance and losses.

No social protection

Sole proprietors do not have access to health insurance. 

No protection from risks of losing investment

Since sole proprietors are fully liable to business risks, they risk losing the investment themselves.

How Can Multiplier Help?

Running a  sole proprietorship in Indonesia has its merits, the most significant one being the ease of starting and running one.  Although kickstarting your business can be smooth, managing affairs around payroll and compliance would be difficult.

Employers will need help paying their employees, managing freelancers, and generating invoices.

Using Multiplier’s SaaS-based employment solution, sole proprietors in Indonesia can pay employees and create invoices without hiring an accountant or building an in-house HR team.

Speak to our experts.

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