Loan Conversion To Equity Agreement Template for Indonesia

A Loan Conversion To Equity Agreement allows you to transform existing debt into company shares under Indonesian law. This document is essential when you need to restructure debt arrangements, facilitate strategic investments, or convert startup funding from loans to equity ownership. The agreement must comply with Indonesia's Company Law (Law No. 40 of 2007) and Investment Law (Law No. 25 of 2007), ensuring proper legal framework for the conversion process.

When do you need this document?

You need this agreement when your company wants to convert outstanding loans into equity shares. This commonly occurs during startup funding rounds where initial loans are converted to investor equity, corporate restructuring situations where debt-to-equity swaps improve financial stability, or strategic investment scenarios where lenders become shareholders. The document is also essential when foreign lenders seek equity conversion, as Indonesia's Investment Law requires careful navigation of foreign ownership restrictions in certain business sectors.

Key legal considerations

Your agreement must address several critical legal elements to ensure validity and enforceability. The conversion terms must specify the exact conversion price, number of shares to be issued, and valuation methodology used for the transaction. You need to include detailed provisions for regulatory compliance, particularly OJK requirements if the conversion involves capital market activities. The document should address shareholder rights post-conversion, including voting rights, dividend entitlements, and transfer restrictions. Additionally, you must consider the impact on existing shareholders and ensure proper disclosure requirements are met under Indonesian corporate law.

Legal requirements in Indonesia

Indonesian law imposes specific requirements for loan-to-equity conversions that you must carefully follow. Under Company Law No. 40 of 2007, you need shareholder approval through a General Meeting of Shareholders for capital structure changes and new share issuance. The Investment Law (Law No. 25 of 2007) requires compliance with foreign ownership limitations and may necessitate approval from the Foreign Investment Supervisory Board. Your agreement must be notarized by an Indonesian Notary Public and registered with the Ministry of Law and Human Rights. If the conversion involves foreign currency loans or foreign lenders, you must comply with Bank Indonesia regulations regarding foreign exchange and capital flows. Additionally, tax implications under Indonesian tax law must be properly addressed, including potential stamp duty and income tax consequences for both parties.