Current as at 21 July 2026.
Founders, developers, designers, marketers, advisers, and early hires are often offered shares in return for their work rather than for cash. In an Indonesian company that exchange has a limit the parties rarely see. Payment for shares must be money, or an asset the company can value and actually receive, under Article 34 of the Undang-Undang Perseroan Terbatas (UUPT, the Company Law), Law Number 40 of 2007. Effort is neither. Paid-up capital is the money or assets actually paid in for the shares, and a share recorded as paid for with work is a share the company has not been paid for. The law treats the unpaid amount as owed to the company, and the person who was given the shares can be pursued for it later, including after they have left the company.
We wrote this for the founder dividing equity with a co-founder, the company offering shares to an adviser, an agency, or an early employee, the person accepting shares in place of a fee, and the buyer who finds sweat equity on the register of a company it is acquiring. The commercial aim, rewarding effort with ownership, is sound. The method of writing that effort straight into paid-up capital is where it fails, and lawful ways to reach the same result exist.
Why this is a legal question, not a preference
Indonesian company law fixes two points that decide the whole subject. Shares must be paid in full when they are issued, under Article 33, and there is no partly-paid or instalment share. Payment must also take one of the forms Article 34 allows. Together these mean a share cannot be issued now and earned later through work, because the work is not a payment the law recognises, and the share cannot sit unpaid in the meantime. Every lawful route below shares one feature, which is that it turns the effort into value the person can put in, whether cash, an owned asset, or a debt the company already owes, because there is no lawful route to a share that was never paid for.
What the law accepts as payment for shares
Article 34 permits payment for shares in cash or in another form. A contribution in another form must be an asset, valued at fair value according to market price or by an expert who is not affiliated with the company, and, under the elucidation of the article, actually received by the company. A contribution of immovable property has an extra step, because Article 34 requires it to be announced in a newspaper within 14 days of the establishment deed.
Two tests decide whether something counts as payment. The thing has to be capable of a money value, and it has to pass to the company as its own property. Cash meets both. A building, a machine, a vehicle, or a licence the company can use meets both. Personal effort meets neither, because it cannot be separated from the person and delivered to the company as an asset.
Why personal effort fails, and where an owned asset succeeds
The line is not tangible against intangible. It is whether the thing contributed is a separable asset the company owns and can value. Skill, time, relationships, and reputation stay with the person, so they do not pass to the company, and they cannot be paid-up capital in a PT. The practical reason is that expertise is inseparable from the individual who has it.
An intangible asset that has been created and can be transferred is different. Intellectual property, a registered trademark, a patent, or software that has been written and assigned to the company can be contributed in kind and valued by an unaffiliated expert, because the company receives an asset it can own and account for. Assigned, transferable software or a registered right is routine to contribute this way. The harder cases sit at the edges, where an undocumented method, personal goodwill, or a codebase the author has not separated from themselves may not be an ownable, transferable, valued asset, which is a question to test on the facts.
A civil partnership follows a different rule, which is where some of the confusion begins. Under Article 1619 of the Civil Code (Kitab Undang-Undang Hukum Perdata, KUHPerdata), a partner in a maatschap may contribute money, goods, or labour, so effort is a valid contribution to a partnership. A PT is not a partnership, and the labour a partner may contribute to a maatschap is not capital a shareholder may contribute to a company. A founder who has read that labour can be a partnership contribution may assume the same of a company, and it is not so.
A worked example: paying a developer in shares
A company asks a developer to build its platform and offers 10 percent of the shares in return, in place of a fee. Recorded directly, the developer receives 10 percent of the shares, and the company books them as paid-up capital, with the development work standing as the payment. No cash and no asset reached the company as capital, so the paid-up figure is unfunded from the day it is recorded. On a later sale of the company, the buyer inherits that shortfall, and the developer, now a registered shareholder, may face a demand to make the capital good.
The same commercial outcome is available through lawful routes, and each depends on a condition the parties secure first. The developer can assign the finished software to the company, provided the engagement left the copyright with the developer rather than passing it to the company as work made for hire, so that there is an owned asset to assign, and then an unaffiliated expert values it and the shares are issued against that valued asset. The developer can invoice the fee and the company can convert the debt into shares, though a fee for pure services may not qualify for that conversion, as set out below. The developer can be paid a market fee for the work and pay cash for the shares, or take an option that is paid for on exercise. The cash and option routes are available whatever the facts; the asset and debt routes each turn on a condition to check before they are relied on.
The lawful routes
Four routes reach the same commercial result without recording capital that was never funded. The cash and option routes work in every case. The debt and asset routes each depend on a condition.
- Keep cash and reward apart
The person pays cash for the shares, at nominal value where the shares are issued early, and is separately rewarded for the work through a salary, a fee, or a bonus. The capital is funded, and the reward is a cost of the business, which the company pays in full and can deduct where it is documented and at arm’s length. For most early hires this is the most straightforward route. - An option or an employee share scheme
The shares are issued and paid for on exercise, once the work has been done and the vesting condition is met, so the shares are paid at the moment they are created. We set the mechanics, the vesting and buy-back terms, and the tax on exercise in our companion article on founder and employee equity in Indonesia. - Convert a real debt
Where the company has received the work and genuinely owes for it, the fee is invoiced and recognised as a payable in the accounts. The parties agree a number of new shares equal to the debt, the general meeting approves the increase and the set-off, meaning the debt cancels the price of the new shares, and the debt is extinguished as the shares are issued paid. Article 35 allows this only with the general meeting’s approval, and its categories cover money or goods the company has received. A fee for pure services sits at the edge of those categories, so for a services debt the eligibility should be confirmed on the facts before the route is relied on, while a debt for an agreed price, for goods, or for reimbursed costs is the clearer case. The set-off itself is generally treated as free of tax where the shares issued equal the book value of the debt, and the underlying fee was already taxable income to the provider when it was invoiced, so this route turns a paid claim into shares rather than removing the tax on the fee. - Contribute a real asset
Where the effort has produced an owned, transferable asset, such as intellectual property or software, that asset can be assigned to the company as payment for the shares. An unaffiliated expert values it, the general meeting approves the in-kind contribution, the asset is assigned to the company by deed, and the shares are issued paid against it. An honest valuation is what makes this route lawful, because an inflated value recreates the unfunded capital this whole subject concerns. The contributor is taxed on any gain in the asset over its cost, and where the asset was self-created the cost is low, so most of the value is taxed, without cash to pay it. The tax office can also treat shares given for a person’s own work as payment for services rather than a simple asset sale, which changes the rate, so this route needs its tax settled before it is chosen.
| Route | What funds the shares | Key condition | Tax to plan for |
|---|---|---|---|
| Cash, reward the work separately | The person’s cash | Shares paid in full at issue; reward paid outside the share account | The reward is a full cost to the company, deductible where documented, and taxable pay to the person, withheld at source |
| Option or employee share scheme | Cash paid on exercise | Shares issued and paid on exercise after vesting | Employment tax on exercise; see the founder and employee equity article |
| Debt-to-equity set-off (Article 35) | The company’s discharged debt | A matured (already due and owed), documented payable and the general meeting’s approval; a pure services fee may not qualify | The underlying fee is taxed when invoiced; the swap is generally neutral where shares equal the debt book value |
| Asset in kind (Article 34) | The assigned asset’s value | An owned, transferable asset, honestly valued by an unaffiliated expert | The contributor is taxed on the gain over cost; the receipt may be recharacterised as service income; property draws a final tax and a duty; value-added tax can apply |
The tax to plan for
Each route has a tax result that should be settled before it is used, and not after.
A fee or a salary paid for the work is taxable income to the person and a cost the company pays in full, deductible where it is documented and at arm’s length. Where the person is a resident, the fee is withheld under the employment or service rules. Where the person is a non-resident, it is withheld at 20 percent, or the lower rate a tax treaty sets, and the deduction depends on the withholding being operated. Issuing shares for cash is not itself a taxable event, beyond the nominal stamp duty on the documents.
Converting a debt into shares is generally neutral at the swap, where the value of the shares equals the book value of the debt. Where fewer shares are issued than the debt, the company has income from the forgiven balance. Where more are issued, the excess sits with the creditor. The fee that created the debt was already taxed as income when it was invoiced, so the route defers nothing on that fee.
Contributing an asset is a disposal by the contributor, so any gain in the asset over its cost is taxed to the contributor under Article 4 paragraph 1(d) of the Income Tax Law, even though the contributor receives no cash, and a self-created asset with a low cost is taxed on almost its whole value. The tax office can treat shares given for a person’s own work as service income rather than an asset sale, at ordinary rates. Where the asset is land or a building, the charge is a final income tax of 2.5 percent on the transfer value and an acquisition duty of up to 5 percent above the non-taxable threshold on the receiving company, not the gain calculation, and it is a larger and separate bill that falls due even though the contributor receives shares rather than cash. Value-added tax can apply to the transfer of some assets, and the exclusion for a contribution made in exchange for shares requires the receiving company, as well as the contributor, to be registered for the tax, which an early-stage company often is not. The company that receives the asset does not treat it as income, and it depreciates the asset from the value contributed, which is a later offset to the contributor’s charge. The tax on an in-kind contribution should be checked for the asset concerned.
The risk if you record it as capital anyway
Sweat equity written straight into paid-up capital produces the defect our article on unpaid share capital concerns. The register and the deed show the shares as paid, and no asset funded them. The company is short of the capital its records claim. On a sale of the shares, the buyer inherits the shortfall, and the person who gave the effort, and has since left the company, is the one the company would have to pursue for a payment that was never made. The rights attached to the shares can be questioned, because they were never paid for, and unpaid capital is the kind of fact a creditor raises to reach the registered shareholder where the company cannot pay its debts. The cure is the same as for any unfunded capital, a verification of what was actually paid and a correction or a completion that funds the gap, and it is far easier done before the shares are issued than unwound afterwards.
How TraceWorthy helps
The TraceWorthy team applies two tests to every share issued, that the payment has a money value and that the asset reaches the company, and structures equity for effort through the four funded routes above, so that the shares are paid at issue and the register reflects payment actually made. We value the asset or size the option, take the increase through the general meeting and the notary, and file the change with the Ministry, so the shares are issued paid rather than recorded paid. Where the equity is part of a founder or staff arrangement, we set it in the shareholders agreement, alongside the option, the vesting, the leaver terms, and the transfer restrictions.
On a purchase, we check the register for sweat equity recorded as paid, quantify what was funded against what was recorded, and build the correction into the transaction. If you are offering shares for work, accepting them, or buying a company whose founders were paid in equity, speak with our team before the shares are issued or the deed is signed.
This article is general information current as at 21 July 2026. Company law and tax change, and the position for any arrangement depends on its own facts, so obtain advice for your own situation before you act. It is not legal, tax, or accounting advice, and it does not create an advisory relationship or reach any conclusion on a particular reader’s position.
Frequently Asked Questions
Can I give someone shares in exchange for their work in Indonesia?
Not by recording the work as payment for the shares, because payment for shares must be cash or an asset the company can value and receive, and personal effort is neither. You can pay the person for the work and have them pay cash for the shares, use an option or a share scheme, convert a genuine invoiced fee into shares under Article 35 where the fee qualifies, since a pure services fee may not, or take an assignment of a real asset the effort produced.
Can intellectual property be used to pay for shares?
Yes, where it is a real, owned, transferable asset such as a registered trademark, a patent, or assigned software, valued at fair value by an unaffiliated expert. The contributor is taxed on any gain in the asset over its cost, and the tax office can treat shares given for a person’s own work as service income rather than an asset sale, so the tax should be settled before the contribution is made.
What is the debt-to-equity route?
Where the company genuinely owes a matured, documented fee, meaning one already due and owed rather than a future or contingent amount, that debt can be set off against the price of new shares under Article 35 with the general meeting’s approval, though a fee for pure services may not qualify. The swap is generally free of tax where the shares issued equal the book value of the debt, and the fee that created the debt is taxed as income when it is invoiced.
Is sweat equity treated differently in a partnership?
Yes. In a civil partnership, a maatschap, a partner may contribute labour under Article 1619 of the Civil Code, so effort can be a partnership contribution. A PT is a company, not a partnership, and the same effort cannot be capital in a PT. Reading across from one to the other is a common source of the error.
Does paying a fee and issuing shares for cash cost more in tax?
It changes where the tax falls rather than always raising it. A fee is taxable to the person, withheld at source, and a cost the company deducts where it is documented. Issuing shares for cash is not itself taxed, beyond stamp duty. Converting a debt or contributing an asset each has its own treatment, which is why the route should be chosen with the tax priced in.
Does this apply to a PT PMA, a foreign-owned company?
Yes, and with an added constraint. A PT PMA has to meet the minimum investment and paid-up capital set by the investment rules, and that capital has to be genuinely paid. Sweat equity is even less workable there, because the threshold cannot be met by recording effort as capital. The routes above are how a foreign founder funds that capital lawfully, and the current thresholds should be confirmed against the investment rules before the structure is set.
I have already issued sweat-equity shares. What now?
Treat the shares as recorded paid-up capital that was not funded, which is the position our article on unpaid share capital sets out. The paid-up figure should be verified against what was actually paid, and the gap funded or the capital corrected, which is more straightforward before a sale than during one.