Tapestry Alert: Indonesia - securities laws. New rules for employee share plans

Tapestry Newsletters

1 June 2023

Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) has implemented new rules requiring non-Indonesian listed companies to formally obtain approval before offering securities for consideration under an employee share plan to Indonesian resident employees and directors. This replaces the previous 'No-Action Letter' process.

The new rules will apply to all offers to participate in an employee share plan of non-Indonesian listed companies from 30 December 2022.


An offer of securities in Indonesia for consideration will be considered a public offer and will be subject to registration requirements with the OJK, unless the offer can fall within the private placement exemption.

The private placement exemption will only apply where the offer is limited to employees of the relevant group and the following conditions apply: (a) offers that are not separated by at least 12 months should be aggregated; and (b) the offer must be made to fewer than 101 persons and securities sold to fewer than 51 persons; or (c) the total amount of the offer does not exceed IDR5Billion.

For companies operating employee share plans in Indonesia that do not meet the private placement criteria, the offer will be considered a public offer and be subject to lengthy and costly registration requirements with the OJK.

However, the laws surrounding employee share plans in Indonesia are unclear, and a practice of companies applying to the OJK for a No-Action Letter developed. These No-Action Letters provided the applying companies with comfort from the OJK that their employee share plans were exempt from the usual public offer registration requirements. The application and issue of No-Action Letters was a well-established process, however, it was never formally codified in the legislation.

What’s changed?

The OJK will no longer issue No-Action Letters. Non-Indonesian listed companies offering securities for consideration under an employee share plan that qualifies as a public offer in Indonesia will now need to apply for, and obtain, a ‘Stipulation Letter’ to be exempt from the public offer registration requirements.

Companies looking to obtain a Stipulation Letter must ensure that they submit an ‘Application Letter’ and an ‘Information Memorandum’ to the OJK prior to the offer being made.

The OJK have specified that the Information Memorandum must, at least, detail the following:

  • date of the offering or date of distribution;
  • certain OJK-mandatory template phrases;
  • information concerning the parties conducting the offering, including:
    • name, address, telephone, e-mail address and/or facsimile;
    • the current main business activities, including descriptions relating to the products and/or services produced, as well as business prospects;
    • capital structure and ownership structure, or the equivalent, in the event that the offeror is not a limited liability company;
    • summary of important financial data;
    • investment risk factors;
    • corporate structure, in the event the offeror is a member of a business group;
    • management and supervision structure; and
    • parties who can be contacted in order to implement the offer.
  • amount of securities and mechanism for plan implementation;
  • summary of plan requirements;
  • participant eligibility criteria;  
  • the period of the securities offering and purchase;
  • calculation basis for securities issued under the plan;
  • any offer price;
  • payment currency;
  • any annual investment cap;
  • payment methods;
  • securities depository;
  • provisions on voting rights, dividends, transfers of securities, and other rights attached to securities, including rights upon liquidation;
  • mechanism for cancelling the shares allocation as well as the redistribution of cancelled shares;
  • source of shares to be offered;
  • any vesting period; and
  • benefits from the implementation of the plan for eligible participants.

The Stipulation Letter must be issued prior to the public offer being made. Failure to obtain the Stipulation Letter prior to the public offer being made may result in potential criminal and/or administrative sanctions.

The OJK has also indicated that any previously issued No-Action Letters may no longer apply, and the OJK may require, in certain circumstances, that a Stipulation Letter is applied for. We understand that the OJK will write to those companies affected, but currently, they are yet to do so. This is a developing situation, but in the view of local counsel, they expect that companies who have obtained a No-Action Letter will be required to apply for a Stipulation Letter if they are yet to fully implement their employee share plan before, or they amend their existing employee share plan after, 30 December 2022. However, this should be clarified in each case as the laws surrounding employee share plans in Indonesia are not clear prior to this date.

Next steps and timing

Companies offering employee share plans in Indonesia will need to carefully consider if their offer can fall within the private placement exemption, and, if not, they will now need to consider applying for a Stipulation Letter to formally exempt their offer from the public offer registration requirements.

As above, companies offering employee share plans that do not qualify as a private offer will need to submit an Application Letter and Information Memorandum prior to the offer of securities in Indonesia. While the OJK has not yet set definitive timelines for how long it will take for them to issue a Stipulation Letter, local counsel is of the opinion that companies should submit their applications at least 8-10 weeks before the offer is made based on the timeline previously applicable to obtaining a No-Action Letter. That said, given this is a relatively new process, the OJK may be experiencing increased applications which could cause a delay in the Stipulation Letter being issued, so the earlier that companies submit their applications the better.

Tapestry comment

Historically, many companies have been comfortable that they did not need to apply for a No-Action Letter on the basis that the law was unclear and market practice indicated that the risk of the OJK enforcing any kind of penalty was low. The new rules formally requiring a Stipulation Letter have made the OJK’s expectations much clearer regarding the process for offering an employee share plan in Indonesia, which seems to have limited the ability of companies to take a commercial view for the same reasoning. These companies should now re-evaluate their position and the relative risk in light of this update.

Companies preparing to make an offer in Indonesia, that cannot take advantage of the private placement exemption, will need to begin preparing their Application Letter and Information Memorandum for submission to the OJK. We note that although local counsel estimates it could be at least 8-10 weeks for the OJK to issue a Stipulation Letter, the preparation of the Application Letter and Information Memorandum, as well as any necessary translations, may mean a longer lead time is needed. Given this uncertainty on timings, companies may decide to delay implementation in Indonesia, or take a risk-based approach and continue with their offering and retroactively apply to the OJK for a Stipulation Letter. Companies taking the latter approach should note the potential criminal and administrative consequences of doing so, and for additional comfort companies may want to consider inserting additional language in their plan documents that the offer is contingent on the OJK issuing a Stipulation Letter.

Thank you to our Indonesian counsel, SSEK, for their continued support on these developments.

If you want to discuss any of the points above or want help with your share plans or other incentive arrangements, please do get in touch.

Lewis Dulley

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