Understanding Foundations and the Procedures for Their Establishment in Indonesia

A foundation (yayasan) is a form of legal entity recognized under Indonesian law and is generally established to carry out activities in the social, religious, and humanitarian sectors. Unlike a limited liability company, a foundation has no members and is not primarily established for the purpose of distributing profits to its founders or governing bodies.

How, then, is a foundation legally characterized under Indonesian law, and what procedures must be followed to establish one?

Definition of a Foundation

Prior to the enactment of legislation specifically governing foundations, foundations had long been recognized in Indonesian civil law practice. Article 1653 of the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata or Burgerlijk Wetboek voor Indonesie) (“Civil Code”) essentially recognizes the existence of associations or organizations that are granted legal entity status.

Foundations are now specifically regulated under Law No. 16 of 2001 on Foundations, as amended by Law No. 28 of 2004 (“Foundation Law”), together with its implementing regulations.

Pursuant to Article 1 point 1 of the Foundation Law, a foundation is a legal entity consisting of separated assets designated for the achievement of specific purposes in the social, religious, and humanitarian sectors, and which has no members.

Although a foundation has no members, it has three principal governing bodies:

Foundation Body	Principal Function
Board of Trustees (Pembina)	Exercises powers that are not delegated to the Management Board or Supervisory Board, including the authority to appoint and dismiss members of the Management Board and Supervisory Board.
Management Board (Pengurus)	Responsible for the management and administration of the foundation, including managing its activities and assets and preparing annual reports.
Supervisory Board (Pengawas)	Supervises and provides advice to the Management Board in carrying out the foundation’s activities.

Accordingly, the governance of a foundation is structured through a division of functions among the body responsible for determining major policies, the body responsible for day-to-day management, and the body responsible for supervision.

May a Foundation Conduct Business Activities?

Although a foundation is principally established for social, religious, and humanitarian purposes, Article 3 paragraph (1) of the Foundation Law permits a foundation to conduct business activities in support of the achievement of its purposes and objectives.

Such business activities may be conducted by:

1. establishing a business entity; and/or
2. participating or holding an interest in a business entity.

However, conducting such business activities does not alter the non-profit nature of a foundation. Proceeds derived from the foundation’s business activities may not be distributed to members of the Board of Trustees, Management Board, or Supervisory Board.

Furthermore, the activities of any business entity established by or participated in by the foundation must be consistent with the foundation’s purposes and objectives and must not contravene public order, morality, or applicable laws and regulations.

Such business activities may cover various sectors, including education, healthcare, environmental protection, science, arts, sports, consumer protection, and human rights.

Requirements for a Foundation’s Name

Certain statutory requirements must be observed when determining the name of a foundation. A foundation may not use a name that:

1. has already been lawfully used by another foundation; or
2. is contrary to public order and/or morality.

In addition, the name of the legal entity must be preceded by the word “Yayasan” (Foundation).

What Are the Procedures for Establishing a Foundation?

In general, the establishment of a foundation involves three principal stages, namely establishment, legalization, and publication.

1. Establishment of the Foundation

A foundation may be established by one or more persons, whether individuals or legal entities, by separating a portion of the founder’s assets as the foundation’s initial assets.

The establishment of a foundation must be documented in a notarial deed drawn up in the Indonesian language. The deed of establishment must contain the foundation’s articles of association and other necessary information.

The articles of association must, at a minimum, contain:

1. the name and domicile of the foundation;
2. its purposes, objectives, and activities undertaken to achieve such purposes and objectives;
3. the duration of the foundation;
4. the amount of initial assets separated from the founder’s personal assets, whether in the form of money or other property;
5. the procedures for acquiring and utilizing the foundation’s assets;
6. the procedures for the appointment, dismissal, and replacement of members of the Board of Trustees, Management Board, and Supervisory Board;
7. the rights and obligations of members of the Board of Trustees, Management Board, and Supervisory Board;
8. the procedures for convening meetings of the foundation’s governing bodies;
9. provisions concerning amendments to the articles of association;
10. provisions concerning the merger and dissolution of the foundation; and
11. provisions concerning the utilization of remaining assets following liquidation or the distribution of the foundation’s assets following dissolution.

In addition to the articles of association, the deed of establishment must contain information concerning the identities of the founder and the foundation’s governing bodies, including their names, addresses, occupations, places and dates of birth, and nationalities.

Establishment of a Foundation by Testamentary Disposition

In addition to being established directly by a founder, a foundation may also be established pursuant to a will or testament.

In such circumstances, the beneficiary or executor of the will acts to implement the testator’s intentions. The establishment must be based on an open will executed before a notary in accordance with the provisions of the Civil Code.

The establishment of a foundation pursuant to a will may be carried out by:

1. expressly providing for the establishment of the foundation and its articles of association in the relevant will; or
2. instructing the executor of the will to establish the foundation in accordance with the applicable laws and regulations.

What Is the Minimum Initial Asset Requirement?

The minimum amount of initial assets required for a foundation depends on the nationality or status of its founder.

For a foundation established by Indonesian persons, the initial assets separated from the founder’s personal assets must have a minimum value of:

IDR 10,000,000 (ten million Indonesian Rupiah).

Where the separated assets are not denominated in Indonesian Rupiah, the value of such assets must be at least equivalent to the amount stated above.

Meanwhile, a foundation established by foreign persons or jointly by foreign and Indonesian persons is subject, among others, to the provisions of Government Regulation No. 63 of 2008 on the Implementation of the Foundation Law, as amended by Government Regulation No. 2 of 2013.

For such foundations, the initial assets separated from the founder’s personal assets must have a minimum value of:

IDR 100,000,000 (one hundred million Indonesian Rupiah).

Where such assets are not in the form of Indonesian Rupiah, their value must be at least equivalent to IDR 100 million.

2. Legalization as a Legal Entity

The execution of a deed of establishment before a notary does not, in itself, confer legal entity status upon a foundation.

A foundation acquires legal entity status only after its deed of establishment has obtained approval from the Minister of Law.

An application for legalization must be submitted by the founder or its authorized representative to the Minister of Law through the notary who executed the deed of establishment. The notary must submit the application no later than 10 days from the date on which the deed of establishment is executed.

In principle, a decision to approve or reject the application must be issued no later than 30 days from the date on which the complete application is received.

If the application is rejected, the Minister of Law must notify the applicant in writing and provide the reasons for such rejection. An application may be rejected if it does not comply with the Foundation Law or its implementing regulations.

It is important to note that any legal acts undertaken by the Management Board on behalf of the foundation before the foundation acquires legal entity status shall be the joint and several responsibility of the members of the Management Board.

Accordingly, obtaining legal entity status is an important prerequisite before a foundation undertakes legal acts in its own name.

3. Publication of the Foundation

Once the deed of establishment has been approved and the foundation has acquired legal entity status, its deed of establishment must be published in the Supplement to the State Gazette of the Republic of Indonesia (Tambahan Berita Negara Republik Indonesia).

Such publication is carried out by the Minister no later than 14 days from the date on which the deed of establishment is approved by the Minister of Law. Publication is subject to fees as prescribed under the applicable laws and regulations.

Accordingly, the process for establishing a foundation may generally be summarized as follows:

Execution of the Notarial Deed of Establishment → Legalization as a Legal Entity by the Minister of Law → Publication in the Supplement to the State Gazette of the Republic of Indonesia.

Conclusion

A foundation is a legal entity established through the separation of assets for specific purposes in the social, religious, and humanitarian sectors and has no members. Its governance structure consists of three bodies, namely the Board of Trustees (Pembina), Management Board (Pengurus), and Supervisory Board (Pengawas).

Although a foundation is inherently non-profit in nature, it may support the achievement of its purposes and objectives by establishing or participating in a business entity. However, proceeds derived from such business activities may not be distributed to members of the Board of Trustees, Management Board, or Supervisory Board.

To establish a foundation, the founder must execute a deed of establishment before a notary in the Indonesian language, provide the required initial assets, obtain legalization from the Minister of Law, and subsequently have the establishment published in the Supplement to the State Gazette of the Republic of Indonesia.

With respect to the minimum initial assets, a foundation established by Indonesian persons must have initial assets of at least IDR 10 million, whereas a foundation established by foreign persons or jointly by foreign and Indonesian persons must have initial assets of at least IDR 100 million.

Legal Basis

1. Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata/Burgerlijk Wetboek voor Indonesie);
2. Law No. 16 of 2001 on Foundations;
3. Law No. 28 of 2004 on the Amendment to Law No. 16 of 2001 on Foundations;
4. Government Regulation No. 63 of 2008 on the Implementation of the Law on Foundations;
5. Government Regulation No. 2 of 2013 on the Amendment to Government Regulation No. 63 of 2008 on the Implementation of the Law on Foundations; and
6. Regulation of the Minister of Law and Human Rights No. M.HH-02.OT.01.01 of 2011 on the Adjustment of the Use of the Name of the Ministry of Law and Human Rights of the Republic of Indonesia.