Profit Sharing Agreement Template for Indonesia
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What is a Profit Sharing Agreement?
The Profit Sharing Agreement is a crucial document used in Indonesian business relationships where two or more parties agree to share profits from a joint business venture or specific project. This document is particularly relevant in Indonesia's diverse business environment, which accommodates both conventional and Islamic business practices. It is commonly used in various contexts including joint ventures, investment partnerships, and business collaborations between local and foreign entities. The agreement must comply with Indonesian regulations, including the Civil Code and Investment Law, while also considering specific sector regulations where applicable. The document typically includes detailed provisions for profit calculation, distribution mechanisms, financial reporting requirements, and audit rights. It's especially important in Indonesia's business landscape where profit sharing arrangements are common in various industries and must often accommodate both local and international business practices.
About the Profit Sharing Agreement
A Profit Sharing Agreement is a legally binding contract that establishes how profits will be calculated and distributed between parties engaged in a business venture in Indonesia. Under Indonesian law, these agreements are governed by the Civil Code and must comply with specific investment and corporate regulations depending on your business structure and industry.
When do you need this document?
You need a Profit Sharing Agreement when entering into joint ventures with Indonesian partners, establishing investment partnerships between foreign and local entities, or creating business collaborations where multiple parties contribute resources and expect to share returns. This document is particularly crucial for foreign investors working with local Indonesian companies, Islamic financial institutions implementing Sharia-compliant profit sharing (mudharabah), and SMEs forming cooperative business relationships. The agreement becomes essential when setting up limited liability companies (PT) with multiple shareholders or when sole proprietorships partner with other businesses for specific projects.
Key legal considerations
Your agreement must clearly define profit calculation methods, distribution percentages, and timing of payments to avoid disputes. Include comprehensive audit rights and financial reporting obligations to ensure transparency and compliance with Indonesian regulations. Address taxation implications under Government Regulation No. 94 of 2010, particularly how profit sharing arrangements affect taxable income calculations. Consider including dispute resolution mechanisms and specify governing law clauses. For Islamic financial institutions, ensure compliance with Law No. 21 of 2008 on Islamic Banking and incorporate Sharia principles. Define each party's rights and obligations clearly, including contribution requirements, management responsibilities, and exit procedures.
Legal requirements in Indonesia
Under Indonesian law, your Profit Sharing Agreement must comply with the Civil Code requirements for contract formation, including mutual consent, legal capacity, and lawful object. For limited liability companies, ensure alignment with Law No. 40 of 2007 on Limited Liability Companies regarding profit distribution mechanisms. Foreign investment arrangements must comply with Law No. 25 of 2007 on Investment, including any sector-specific restrictions or requirements. Financial Services Authority Regulation No. 15/POJK.04/2015 mandates specific reporting requirements for certain profit sharing arrangements. Include proper identification of all parties, specify the business activities covered, and ensure the agreement is executed in accordance with Indonesian contract law formalities. Consider notarization requirements and registration obligations depending on your business structure and industry sector.
GOVERNING LAW
Applicable law
This Profit Sharing Agreement is drafted to comply with Indonesia law. Key legislation includes:
Law No. 40 of 2007 on Limited Liability Companies: Regulates corporate governance and profit distribution mechanisms in Indonesian companies
Law No. 25 of 2007 on Investment: Governs investment activities and business cooperation between parties, including foreign investment aspects
Government Regulation No. 94 of 2010: Deals with calculation of taxable income and tax payment on profit sharing arrangements
Financial Services Authority Regulation No. 15/POJK.04/2015: Provides guidelines for profit sharing arrangements and reporting requirements
Law No. 21 of 2008 on Islamic Banking: Relevant for profit sharing arrangements using Islamic principles (if applicable), including musyarakah and mudharabah concepts
Minister of Trade Regulation No. 76 of 2018: Regulates business partnerships and profit sharing arrangements between companies
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