In a Limited Liability Company (PT), the board of directors is usually the person who has the highest power in the existing hierarchy, below the shareholders and commissioners. However, it is important to know that the role of directors in the business world has its own tenure. Yes, as the part that plays an important role in making strategic decisions, overseeing operations, and maintaining the financial health of the company, the term of office of the board of directors has a set time limit. The question is, when and why does the term of office of the board of directors expire? In this article, we will explain the important aspects of the term of office of the board of directors, namely the appointment of directors in a PT and the reasons why the term of office of the board of directors expires. Read on until the end! What is a Board of Directors? The Board of Directors itself is defined as a company organ that is authorized and fully responsible for the management of the PT for the interests of the PT, in accordance with the aims and objectives of the PT and represents the PT, both inside and outside the court in accordance with the provisions of the articles of association. This is explained in Article 1 number 5 of Law No. 40 of 2007 concerning PT, as now some of its provisions have been amended through Government Regulation No. 2 of 2022 concerning Job Creation. Regarding the duties and authority of the board of directors, it is further regulated in Article 92 number 5 of the PT Law that in the event that the board of directors consists of two or more members of the board of directors, the division of management duties and authority among the members of the board of directors shall be determined based on the decision of the General Meeting of Shareholders (GMS). If later it turns out that the GMS does not determine the division of duties and authority of the members of the board of directors, then the division of duties and authority of the board of directors is determined based on the decision of the board of directors.
What are the Terms of Appointment of Directors?
The appointment of directors is an important matter in a PT. Given its authority to make the highest decisions and to act on behalf of the PT, the absence of this corporate organ will make the operations of a PT irregular and legally ‘gray’. For the first time appointment during the establishment of a PT, the board of directors is appointed through the inclusion of the names of the directors in the deed of establishment of the PT. As for the appointment of directors thereafter, this is done through the Annual GMS or Extraordinary GMS. In this case, the technical procedures for the appointment of directors can be regulated in the respective provisions of the articles of association, as long as these provisions do not conflict with the general principles in the PT Law.
How long is the term of office for directors?
One of the general principles in the appointment of PT directors in the PT Law is that there is a time limit on the term of office of PT directors. The PT Law itself does not specifically explain the time limit in question, such as for a period of years. However, the meaning of “time limit” in the PT Law implicitly explains that the PT is obliged to determine when the term of office of a director ends. In other words, PTs are prohibited from not imposing time limits or imposing lifetime directorships on each party in each appointment.
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The PT must also look at the circumstances of the directors and the condition of the PT in determining the term of office of a director. The circumstances and conditions referred to can be in the form of the physical condition of the directors, the level of saturation, or the financial level of the PT. Later, the directors whose term of office expires can be reappointed for the umpteenth time (without limitation) with the consideration of the GMS.
Reasons for Expiration of Directors’ Term of Office
In the context of Indonesian law, the reasons for the expiration of a company’s board of directors are regulated by the Company Law. The following are some of the common reasons regulated by the Company Law that may lead to the expiration of the board of directors:
Expiration of Term of Office
As explained earlier, directors have a certain predetermined term of office. The position of a director will automatically expire at the end of that term, unless the director is re-elected by the GMS.
Dismissal by GMS
Based on Article 105 paragraph (1) of the PT Law, shareholders have the right to record directors if there are valid reasons. However, the PT Law itself does not explicitly define these legitimate reasons. In practice, the reasons for the removal of directors are caused by several things such as the inability of directors to carry out their duties according to shareholders, violations of law, efficiency or serious violations of ethics and good corporate governance. These reasons must be given during the GMS to the directors to be dismissed. In addition, directors in this case must also be given the right to defend themselves at the GMS that agendizes their dismissal.
Resignation by Directors
In accordance with Article 107 of the Company Law, directors are also entitled to resign from their positions for personal or professional reasons. In this case, the procedures for the resignation of directors can be regulated in the respective articles of association.
Procedure for Reappointment of Directors through GMS
Explained in the PT Law, the GMS is one of the company’s organs in addition to the board of directors and commissioners. The authority of the GMS in appointing members of the board of directors cannot be delegated, so the GMS is the highest power in the company. If the company will reappoint / change the board of directors, it means that there will be changes to the company’s articles of association, in this case it must use a notarial deed ratification. The procedure starts from the company’s board of directors authorizing a notary to submit a request for amendment to the MOLHR. The following are the requirements for the implementation of the GMS in the reappointment of members of the board of directors and board of commissioners:
- A total of ⅔ of the shares with voting rights must be present or represented.
- Resolutions will be valid if approved by at least ⅔ of the total votes cast.
- The above provisions apply, unless there is a provision in the articles of association that determines the quorum of attendance or the provision of votes in making decisions with a larger number.
If the reappointment/change of directors has been carried out, it is obligatory to notify the Minister for recording in the company register no later than 30 days after the GMS. If the notification is not/late, any application submitted by the company or notification addressed to the Minister by the directors who have not been registered in the company register will be rejected. Furthermore, if there is an agreement made by a director whose term of office has expired, the agreement can be canceled because it does not meet the subjective requirements.
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This is because the party making the agreement is no longer entitled to act for and on behalf of the company because his term of office has expired. Or if there is an agreement by directors whose term of office has expired, then problems or losses arise, then the directors must be fully responsible personally.
KH Contact
Well, that’s the explanation about the term of office of directors. For KH Pals who are still confused and have questions about directors and other organs for PT, just consult with Kontrak Hukum. As a digital legal platform, we can help you with matters related to companies (business entities) starting from the establishment, processing of legal documents, to consulting the needs therein such as directors, board of commissioners, and so on. No need to worry, because with fast workmanship and affordable prices, all data information related to your company is guaranteed to be safe and protected. To view services, please visit the KH Services – PT page. If you have questions about other business needs, you can also contact us at Ask KH or send a direct message (DM) to Instagram @kontrakhukum.
