Equity Loan Agreement Template for Indonesia

An Equity Loan Agreement allows you to secure financing by pledging your equity holdings as collateral, providing a flexible alternative to traditional asset-backed lending under Indonesian law. This specialized contract enables corporate borrowers to access capital while maintaining operational control of their equity investments, subject to specific regulatory requirements under the Indonesian Civil Code and OJK regulations.

When do you need this document?

You need an Equity Loan Agreement when your company requires working capital or expansion funding but prefers not to use physical assets as collateral. This document becomes essential during corporate restructuring when maintaining equity ownership is crucial for strategic control. Companies often use these agreements when traditional bank loans are unavailable or when the terms of conventional financing don't align with business objectives. The agreement is also valuable for holding companies with significant equity portfolios that need liquidity without divesting their investment positions. Foreign investors operating in Indonesia frequently utilize these contracts to leverage their local equity holdings while complying with investment law requirements.

Key legal considerations

Your agreement must clearly define the share pledge mechanism and valuation methodology, as equity values fluctuate and can affect loan security ratios. Voting rights provisions require careful attention, as you'll need to specify whether voting control transfers to the lender or remains with the borrower during the loan term. Dividend treatment clauses should address how distributions from pledged shares are handled, whether applied to loan reduction or retained by the borrower. Default provisions must outline specific triggers and enforcement procedures, including the lender's rights to sell pledged shares and the process for any surplus after debt satisfaction. Cross-default clauses linking the equity loan to other corporate obligations can significantly impact your company's financial flexibility and should be negotiated carefully.

Legal requirements in Indonesia

Under Indonesian Civil Code Articles 1233-1456, your equity loan agreement must meet fundamental contract requirements including legal capacity, lawful object, and proper consideration. Law No. 40 of 2007 on Limited Liability Companies governs share pledge procedures, requiring compliance with corporate governance standards and shareholder notification requirements. If your pledged shares are publicly traded, Law No. 8 of 1995 on Capital Markets imposes disclosure obligations and trading restrictions that must be incorporated into your agreement. OJK regulations may require specific documentation and reporting, particularly if the lender is a regulated financial institution. The agreement requires notarization by an authorized Indonesian notary to ensure legal validity and enforceability. Foreign lenders must comply with Law No. 25 of 2007 on Investment, which may impose additional restrictions or approval requirements depending on the borrower's business sector and the loan structure.