Current as at 21 July 2026.
Equity plans built in other markets usually issue shares now and let them vest over time, meaning the recipient earns the shares by staying rather than paying for them up front. In Indonesia that starting point conflicts with two rules. Shares must be paid in full when they are issued, under Article 33 of the Undang-Undang Perseroan Terbatas (UUPT, the Company Law), Law Number 40 of 2007 as amended by Law Number 6 of 2023, and future effort is not among the forms of payment Article 34 recognises. Paid-up capital is the money or assets actually paid in for the shares, so a grant of shares that vests through future work records paid-up capital that no cash or asset has funded. Indonesian law treats that as capital still owed to the company, which a buyer of the company later inherits, and which the person granted the shares can be pursued for after they leave the company.
We wrote this for the founder dividing equity with a co-founder, the company setting up a share scheme for its staff, the employee offered shares in place of a salary, and the buyer reading a capitalisation table, meaning the record of who owns the shares and on what terms, before a purchase. Each needs the equity to sit inside the rules, because a plan that does not is a liability the company acquires along with the people it was meant to reward.
Why a plain vesting grant does not work here
A plain vesting grant issues the shares at the start and lets the recipient earn them by staying. The recipient pays nothing at the point of issue, so the shares are unpaid, and Indonesian law does not recognise a partly-paid or instalment share. The company has recorded paid-up capital against a promise of future work, which Article 34 does not accept as payment, so the register shows the shares as paid when nothing reached the company. This is what we call the unfunded-capital defect, set out in our article on unpaid share capital, a paid-up figure with no real asset behind it. The task is to give equity for effort without creating that gap, and the TraceWorthy team uses two funded designs to do it, an option and reverse vesting.
The option route
An option keeps the shares unissued until they are earned. The company grants a right to acquire a set number of shares at a set price, the exercise price, once the vesting condition is met. Vesting is usually time-based, over a period such as four years with a one-year cliff, meaning nothing vests in the first year, or tied to milestones. The shares are issued and paid for in cash at exercise, through a capital increase the general meeting (Rapat Umum Pemegang Saham, RUPS) approves, so, done correctly, this satisfies Article 33 at the moment the shares come into existence, because they are paid as they are created. Shares issued to employees are exempt from the offer to existing shareholders that Article 43 otherwise requires, so an employee scheme does not have to clear a pre-emptive-rights round first.
The steps follow a fixed order:
- The plan and the option agreement set the number of shares, the exercise price, and the vesting schedule.
- The person earns the option by staying or by meeting the milestone.
- On exercise, the person pays the exercise price in cash, the general meeting approves the increase, the notary records it, and the change is filed with the Ministry, so the shares are issued paid.
- The exercise price, which has to be at least the nominal value of the shares, funds them, so they are paid as they are created rather than issued short of par.
Tax attaches on exercise rather than on grant or on vesting. The difference between the market value of the shares at exercise and the exercise price the employee pays is generally treated as employment income, taxed on the individual, which follows from the taxation of benefits in kind under Government Regulation Number 55 of 2022. The charge is due in cash at exercise, and the employee funds both the exercise price and that tax at the same time, while the shares in a private company cannot yet be sold to raise it, so a lower exercise price, or timing the exercise to a sale, is used to manage that cost. Where the employee is a non-resident, the benefit is withheld at 20 percent, or the lower rate a treaty sets.
A later sale of the shares is taxed again on any further gain. A sale on the Indonesian exchange is a final tax of 0.1 percent of the transaction value, a sale of unlisted shares by a resident is ordinary income, and a sale of unlisted shares by a non-resident is a final withholding of 5 percent of the gross price. The market value the exercise charge turns on is set, for an unlisted company, by an agreed formula or an independent appraiser (Kantor Jasa Penilai Publik, KJPP). The exercise-point charge is the settled practice of the tax authorities rather than a single written rule, so the treatment should be confirmed for the specific plan before it is offered.
Reverse vesting and buy-backs
Reverse vesting changes the order. The founder pays cash for the shares at the outset, which, when it is paid in and recorded, funds the capital, and the company or the other shareholders take a right to buy back the unvested portion if the founder leaves before the shares vest. The shares are real and paid from the first day, and vesting is a contractual repurchase rather than a deferral of payment. For founders splitting equity at the start, when the shares are worth little and the cash cost is small, this is usually the cleaner design.
Where the company itself does the buy-back, Article 37 of the Company Law sets limits. The buy-back may not reduce the company’s net assets below its issued capital plus the reserve it must set aside from profit. The shares bought back, together with any shares pledged to the company, may not exceed 10 percent of the issued capital. The company may keep them for at most three years before it reissues or cancels them. A buy-back that breaches these limits is void by law, and it needs the general meeting’s approval. Because of the 10 percent ceiling and the three-year limit, the buy-back right is often given to the other shareholders or the founders rather than to the company, which sit outside those limits.
A buy-back or call option written into a shareholders agreement binds the parties, because a lawful agreement has the force of law between them under Article 1338 of the Civil Code (Kitab Undang-Undang Hukum Perdata, KUHPerdata), provided the agreement meets the ordinary conditions of a valid contract. One design should be avoided. A clause that simply strips a departing founder of fully-paid shares for no payment is fragile, because it works against the principle that shares are paid for, and its enforceability is not settled by any clear authority. The safer term is a call to buy the shares back at a price fixed in advance, such as cost, nominal value, an agreed formula, or a valuation, so the leaver is paid for the shares rather than losing them for nothing.
How the buy-back is taxed depends on who buys. A purchase by the other shareholders or the founders is a disposal by the leaver, so at the price the leaver paid there is no gain, and above it the gain is taxed as a share sale. A buy-back by the company itself is treated differently, because the amount the leaver receives above the capital paid in for the shares is taxed as a dividend rather than a capital gain, which for a non-resident engages the dividend rules instead of the share-sale rules. This is a further reason to give the call to the shareholders rather than to the company.
A worked example: a co-founder who leaves early
Two co-founders each take 50 percent of the shares at incorporation, with a four-year vest and a one-year cliff, on a reverse-vesting basis. Each pays cash for the shares at nominal value at the start, so, with each payment made and recorded, the capital is funded and the register reflects it from the first day. One founder leaves after 18 months. The one-year cliff had passed, so vesting had run straight-line, and 18 of the 48 months had vested, which is 37.5 percent of that founder’s shares, with the rest unvested.
The shareholders agreement gives the remaining founder, rather than the company, a call over the unvested shares at the price the leaver paid for them. The remaining founder exercises the call, pays that price, and the unvested shares transfer to the remaining founder. The leaver keeps the vested portion and is paid the nominal cost for the unvested portion, so nothing is taken for nothing. The company’s capital is funded because both founders paid for their shares at the start, and the buy-back is a transfer between the two individuals that does not touch the company’s capital either way. Recorded the wrong way, as a forfeiture of the leaver’s shares for no payment, the same split would rest on a fragile clause, and, where the shares had been issued unpaid at the start, would also inherit the unfunded-capital defect a buyer later pays for.
An employee share scheme in a private company
An employee share scheme should set the size of the pool, meaning the block of shares reserved for staff grants, the vesting, and the leaver terms at the outset, because a pool agreed loosely dilutes the founders in ways they did not price.
A private company has no dedicated statute for an employee share plan, the kind known in the market as a management or employee stock option programme (MESOP or ESOP). It is built from the shareholders agreement, the option or award agreement, and a capital increase the general meeting approves when the shares are issued, using the general share rules and the employee exemption in Article 43.
A listed company issues scheme shares through the capital-markets route for an issue without pre-emptive rights, under the rules of the Financial Services Authority (Otoritas Jasa Keuangan, OJK) such as POJK 38/POJK.04/2014, follows the OJK procedure for such an issue, and, where it later buys shares back, the separate OJK buy-back rules, all on top of the exchange’s listing conditions.
The absence of a single scheme regulation is worth stating to anyone who has been told there is one, because a draft was circulated years ago and never enacted.
Leaver terms
A plan needs to say what happens when a person leaves, because that is when equity disputes arise. A good-leaver and bad-leaver split, with a priced call over the leaver’s shares in each case, sets the outcome in advance. A good leaver, one who leaves through no fault, might keep the vested shares and sell the rest at a fair price. A bad leaver, one dismissed for cause, might be called at cost on the whole shareholding. The price, the trigger, the permitted buyer, and the timing should be written into the shareholders agreement, and a buy-back by the company should respect the Article 37 limits. The agreement should also set the drag-along and tag-along terms, which decide how a minority holder or an option-holder is treated when the company is sold, because those are the terms a buyer and the smaller holders test first.
Where the company is a PT PMA
Where the company is foreign-owned, a PT PMA (Penanaman Modal Asing, a foreign investment company), two further constraints apply.
The investment rules set a minimum investment and a minimum paid-up capital. The minimum investment is generally above Rp10 billion excluding land and buildings, though some sectors are assessed differently and some include the land and buildings. The minimum paid-up capital is Rp2.5 billion, which has to stay in the company for at least the first year.
Either way, a founder cannot subscribe a PT PMA at a trivial nominal value, so the small cash cost that makes reverse vesting attractive elsewhere does not apply in the same way. The foreign-ownership limit for the sector, set in the investment list, has to be respected on every exercise and every transfer, because a capital increase or a share transfer that takes foreign ownership past the limit cannot be registered.
A change to the shares also has to be reported through the investment and licensing system, not the company registry alone. The thresholds and the sector limit should be confirmed against the current investment rules before a plan is set, because they move.
What a buyer checks
For a buyer, an equity plan changes the capitalisation table the purchase relies on. Unvested shares may reverse on a leaver, open options will dilute the existing shares when they are exercised, buy-back rights apply to shares the register shows as owned outright, and any shares issued against future work leave the same unfunded capital a purchase inherits. Our verification of the paid-up capital, set out in the article on unpaid share capital, covers each of these against the register and the accounts, and prices the option pool into what the buyer is actually acquiring.
How TraceWorthy helps
The TraceWorthy team builds founder and employee equity that funds the shares at issue, whether through options that are paid for on exercise or through reverse vesting where the founder pays at the outset and a priced buy-back covers a leaver, and documents either in the shareholders agreement, the document that also sets the transfer restrictions, the buy-back, the good-leaver and bad-leaver terms, and the drag-along and tag-along rights. We size the pool, set the vesting, take each increase through the general meeting and the notary, and settle the tax treatment before the plan is offered rather than at the first assessment. On a purchase, we read the capitalisation table against the register and the accounts, and we verify that the shares recorded as paid were funded.
If you are dividing founder equity, setting up a staff share scheme, or buying a company whose capitalisation table includes options or unvested shares, speak with our team before the plan or the deed is signed.
This article is general information current as at 21 July 2026. Company law, capital-markets rules, and tax change, and the position for any plan or transaction 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 a co-founder shares that vest over time in Indonesia?
Not by issuing unpaid shares that vest, because shares must be paid in full when they are issued and future effort is not accepted as payment. The workable designs are an option, where the shares are issued and paid for in cash on exercise after vesting, or reverse vesting, where the co-founder pays for the shares at the outset and a priced buy-back covers the unvested portion if they leave early.
What is reverse vesting, and is it enforceable?
Reverse vesting has the founder pay for and own the shares from the start, with a contractual right for the company or the other shareholders to buy back the unvested portion at a set price if the founder leaves before vesting. The buy-back binds the parties as a contract under Article 1338 of the Civil Code, provided it is a valid contract. A clause that takes the shares for no payment is a weaker position, so a priced call is the safer route.
How is an employee share option taxed?
The established treatment taxes the option on exercise, on the difference between the market value of the shares at that point and the exercise price the employee pays, as employment income, and that tax is due in cash at exercise while the shares may not yet be saleable. A non-resident is withheld at 20 percent or the treaty rate. A later sale is taxed on any further gain, at 0.1 percent on an exchange sale, as ordinary income on an unlisted sale by a resident, and at 5 percent of the gross price on an unlisted sale by a non-resident. Because the exercise-point charge rests on the tax authorities’ practice rather than a single written rule, the treatment should be confirmed for the specific plan.
Can the company buy back a leaver’s shares?
Yes, within limits. Under Article 37 of the Company Law, a company buy-back may not push net assets below issued capital plus the reserve it must set aside, may not exceed 10 percent of the issued capital, and may be kept for at most three years, and it needs the general meeting’s approval. Where those limits are tight, the buy-back right is given to the other shareholders instead.
Does a buy-back trigger tax for the leaver?
It depends on who buys. Where the other shareholders or the founders buy the shares, it is a disposal by the leaver, taxed like a share sale, with no gain where the price equals what the leaver paid. Where the company itself buys the shares back, the amount above the capital paid in for them is taxed as a dividend rather than a capital gain, which is a further reason to route the call to the shareholders. The exact treatment depends on whether the leaver is a resident and whether the shares are listed, which should be checked for the case.
How large should an option pool be?
There is no statutory pool size, so it is set by agreement and priced as dilution of the founders. The 10 percent figure people often cite is the Article 37 limit on a company buying back its own shares, not a cap on an option pool, so the two should not be confused. The size is a commercial decision that should be fixed at the outset and documented, not left to grow case by case.
Is there an ESOP law in Indonesia?
There is no enacted standalone regulation for an employee share ownership plan. A draft was circulated years ago and never became law. A private-company scheme is built from the shareholders agreement and a capital increase at exercise, and a listed-company scheme uses the capital-markets rules for an issue without pre-emptive rights.