Business Entities (Badan Usaha) – Comprehensive Exam Notes

Concept of a Business Entity (Badan Usaha)

A business entity is a juridical–economic unit that establishes and runs an enterprise with the primary goal of generating profit.
Key characteristics
- Profit–oriented.
- Requires capital and labour to operate.
- Although often interchanged, “badan usaha” (business entity) and “perusahaan” (company) are conceptually distinct.

Distinction between Business Entity and Company (Ismawanto, 2009)

Scope & Process
- Business Entity: Organisational process that links factors of production.
- Company: Technical process of producing goods/services.
Breadth
- Business entities can own multiple companies (multi-unit).
- A company is only one production unit.
Purpose
- Business entity: $\text{profit-maximisation}$ .
- Company: production site (technical focus).
Ownership
- A business entity can supervise several subsidiary companies.
- A company is not necessarily under a single parent entity.

Classification of Business Entities

1. By Field of Activity (Lapangan Usaha)

Extractive Enterprises
- Exploit natural resources directly without cultivation.
- Example: artisanal fishers.
Agrarian Enterprises
- Engage in cultivation / farming, fishing, plantation.
- Example: paddy farmers, seaweed farms.
Industrial / Manufacturing Enterprises
- Convert raw materials into semi-finished or finished goods via machinery & technology.
- Example: textile factories.
Trading Enterprises
- Do not change the form of goods; purchase from producers and resell to consumers.
- Example: supermarkets.
Service Enterprises
- Provide intangible services or skills to customers.

2. By Scale of Company

Scale	Workers	Net Assets	Gross Turn-over
Small	$5\le n\le19$	< $\text{Rp }200\text{ million}$	<\text{Rp }200\text{ million}
Medium	$20\le n\le99$	$\text{Rp }500\text{ million} - 10\text{ billion}$	$\text{Rp }2.5 - 50\text{ billion}$
Large	$n\ge100$	> $\text{Rp }10\text{ billion}$	> $\text{Rp }50\text{ billion}$

Examples: laundry (small), logistics firm (medium), PT Pertamina (large).

3. By Ownership of Capital

BUMN – State-Owned Enterprise.
BUMD – Regionally Owned Enterprise.
BUMS – Privately Owned Enterprise.

Functions of Business Entities

Commercial Function – Efficient & effective transformation of inputs to profitable outputs.
Social Function – Community empowerment, environmental quality, good labour relations.
Developmental Function – Partner/supporter of government for national economic growth.

State-Owned Enterprises (BUMN)

Legal Definition

UU No. 19/2003: entity with all or majority (≥ $51\%$ ) capital owned directly by the state from separated state assets.

Objectives

Contribute to national economy.
Earn profit.
Provide essential goods/services to society.
Operate in compliance with prevailing laws & their founding purpose.

Types of BUMN

Perseroan (Persero) – State-Owned Ltd.
- At least $51\%$ shares held by government; remainder (≤ $49\%$ ) may be public.
- Profit seeking; bound by the Commercial Code (KUHD).
- Governance: Board of Directors (operational) + Commissioner (oversight) + mandatory RUPS (shareholders’ meeting).
Perusahaan Umum (Perum)
- 100 % capital owned by the state; under MoF and relevant ministry.
- May borrow funds for extra capital.
- Goals: public-oriented supply of quality goods/services at affordable price while remaining financially sound.

Roles of BUMN

Produce goods/services for public welfare.
Foster SMEs & co-operatives.
Major source of state revenue.

Strengths & Weaknesses

Strengths: serve public utilities, guaranteed capital, control sectors vital to society.
Weaknesses: often inefficient, bureaucratic decision-making, managerial professionalism issues, sometimes loss-making.

Regionally Owned Enterprises (BUMD)

Legal Foundations

UU No. 5/1962 & PP No. 54/2017.
Defined as enterprises whose capital is wholly/partly owned by regional government (APBD-sourced separated assets).

Objectives

Enhance regional economic growth.
Provide quality goods/services for local needs.
Generate profit.

Characteristics

Must be established via regional regulation.
Led by a Board of Directors.
Act as local development funding source (province or regency/city).

Types

Perusahaan Perseroan Daerah (Perseroda) – Regional Ltd.; ≥ $51\%$ shares held by one region.
Perusahaan Umum Daerah (Perumda) – 100 % regional capital; shares not divided.

Roles

Regional revenue generator.
Supplier of public goods/services.
Driver of local economic activity.

Strengths & Weaknesses

Strengths: sustainable funding, easy capital access, government covers losses, operate in less-attractive sectors, profits support local budget.
Weaknesses: potential inefficiency (moral hazard), lengthy bureaucracy, limited capacity to absorb large losses.

Private Enterprises (BUMS)

Definition

Businesses wholly owned by private parties (individuals or groups), not government.
Profit-oriented and operate in all economic sectors.

Main Legal Forms

Perusahaan Perseorangan (Sole Proprietorship)
- Single owner provides capital.
- No legal separation between personal & business assets.
- Micro/small scale; does not require notarial deed.
- Pros: easy to form, flexible management.
- Cons: unlimited liability, limited capital & managerial capacity.
Firma (Fa)
- Founded by ≥2 partners, usually under a joint name.
- All partners bear unlimited, joint liability for debts.
- Profits shared according to capital ratio.
- Pros: larger capital base, shared expertise, easier credit access.
- Cons: slower decision-making, joint exposure to mistakes, potential profit-sharing disputes.
Persekutuan Komanditer (CV)
- Mix of active (managing) and passive (capital-only) partners.
- Clear division of roles; active partners hold unlimited liability, passive partners limited to capital invested.
- Pros: expanded capital & expertise; cons: decision conflicts, liability asymmetry.
Perseroan Terbatas (PT) – Limited Liability Company
- Body corporate; founded by ≥2 persons with share capital.
- Legal personality recognised upon Ministry of Law & HR approval.
- Shareholder liability limited to paid-up shares.
- Essential legal steps
1. Notarial Deed containing AD/ART.
2. Ministerial ratification.
3. Capital rules: minimum authorised capital $\text{Rp }20\text{ million}$ ; ≥ $25\%$ subscribed; ≥ $50\%$ of subscribed paid-in.
4. Annual RUPS (shareholders’ meeting).
5. Can be closed (LTD) or public (Tbk – shares traded on BEI).
- Pros: easy capital raising via shares, sustainability, transferable ownership, professional management.
- Cons: complex formation, higher costs & taxes, limited confidentiality (esp. Tbk).

Other Ownership Compositions

Swasta Nasional – capital & management by Indonesian private sector (e.g., PT Indofood Sukses Makmur).
Swasta Asing – foreign private capital operating in Indonesia (e.g., Citibank, Freeport before majority takeover).
Swasta Campuran – joint Indonesian & foreign private ownership (e.g., Indosat, Aqua Golden Mississippi).

Economic Roles of BUMS

Engine of production, distribution, and services.
Accelerate national economic performance & efficiency.
Create employment & reduce poverty.
Supply goods/services to society.
Contribute tax revenue to the state.

Limitations of BUMS

Excessive profit motive may neglect social/environmental aspects (pollution, low wages, etc.).
SMEs face difficulty obtaining capital, limiting scalability.

Ethical & Practical Implications

Choice of business form affects liability, capital access, governance, and social responsibility.
State & regional enterprises bear public-service obligations; efficiency reforms often required.
Private enterprises complement public entities but must balance profit with sustainable practices.

Key Numerical & Legal References

UU No. 19/2003 (BUMN), UU No. 5/1962 & PP No. 54/2017 (BUMD).
BUMN Persero minimum state share: $51\%$ .
PT authorised capital minimum: $\text{Rp }20\text{ million}$ ; subscription ≥ $25\%$ ; paid-in ≥ $50\%$ of subscription.
Company scale thresholds: assets & turnover figures given above.

These bullet-point notes cover every major and minor concept, legal basis, classification, example, numerical threshold, and the comparative strengths & weaknesses required for a full understanding of Indonesian business entities (Badan Usaha).