To ascertain many scopes of business and activities in Indonesia be conducted properly, the Government of Republic of Indonesia has provided the base for non-profit organizations’ scope of practice in Indonesia. With this topic, we will cover the types of recognized non-profit organizations in the country.
See below the acknowledged types of entity considered as non-profit in Indonesia :
Foundation
In accordance with Article 1 (1) of Law No. 16 of 2001 concerning Foundation (“Yayasan”), Foundation is a legal entity established with provided separate assets by the founders, concentrating to be allocated in the field of social, religious and humanity with certain purposes. In which those purposes may not contain economical or financial benefit to the Foundation or the founders individually. The founders of this type of non-profit organization are entitled to provide separate assets to the legal entity from their own individually personal assets. Within the Foundation, a membership system is not recognized. The structural status of Foundation is considered to be :
- Board of Patrons (“Dewan Pembina”)
- Board of Management (“Dewan Pengurus”)
- Board of Supervisor (“Dewan Pengawas”)
Board of Patrons hold the highest positions in the organizational structure of Foundation. The activities are conducted by the Board of Management alongside with supervision and guidance from the Board of Supervisor.
Foundation is actually allowed to perform profitable activities; however, the acquired profits are only allowed to be utilized for the daily operational activities of the Foundation and may not be distributed to the Founders. This is the most distinguished character of Foundation that is different from the Limited Liability Company.
Then how is it possible for Foundation to acquire their profits?
- By performing investment activities : either to business entity or to legal entity; such as Limited Liability Company (“Perseroan Terbatas”) with certain limitations. The business entity would be in similar activities and aligned with the Foundation’s purpose and may not contradict the basic nature of the Foundation. The structural boards are also not allowed to be in the structural organization of the limited liability company.
- By acquiring grant or willed grant.
- Donations or non-binding aid and support.
- Charity; and
- Other incomes that are not contradictory to the Articles of Association of the Foundation.
The incorporation of a Foundation will acquire acknowledgement shown by Approval Letter by the Ministry of Law and Human Rights of Indonesia. Therefore, the Foundation will be considered as a legal subject before the law of Indonesia.
Association
Association is also considered as one of the Non-Profit organization that is recognized in Indonesia that is defined as an assembly place for people with similar purposes that are willing to acquire non-economical benefit by the incorporation of the Association (“Perkumpulan”). From its very definition, Association is different from Foundation since it acknowledges the membership concept for the body. For now, no actual certain regulations that cover the concept of Association, especially when the Government is still considering to establish one particular regulation for it, however in the Regulation the Minister of Law and Human Rights No.10 of 2019, the steps on how to acquire approval upon Association are stipulated.
The Association is mainly following the concept that was previously used during the colonialism era of the country. Though, has no specific regulation upon it, the Association is considered secured by the Constitution of Indonesia that allows freedom to associate and freedom to gather; without having to strictly “legalize” the activity.
Association is commonly known as a non-profit organization which members aim the same purpose and activities. Then what is the legal standing of Association? To present itself as a legal entity, it has similar requirements with the other recognized legal entity. The Association will be considered one, once they obtain the Approval from Ministry of Law and Human Rights upon their Articles of Association.
See what steps and actions to take to obtain the Approval :
- Required to first obtain the Name of Association be booked and paid in the Data System of Ministry of Law and Human Rights : http://ahu.go.id. The name should be in 3 words without any punctuation mark and not in contradictory with the governed regulated law.
- Upon acquiring the name, then login access in the website will be provided to continue on with the data submission of establishment.
- Documents to be prepared upon submission are :
- Establishment Deed of Association
- Tax ID Number of Association legalized by the Notary
- Statement Letter upon the registered address and signed by the Association’s representative and acknowledged by local area government agent
- Proof of payment upon the assets owned by Association or statement letter from the founders to provide acknowledgement upon the value of assets that will be owned by the Association/acknowledgement of initial assets stored for Association
- Statement Letter of not being in any kinds of dispute for the founders within the Association
- Then follow all the steps in the website to request for the Approval by the Minister of Law and Human Rights
It is also possible if the Association is not “legalized”, it will still considered be a acknowledged entity without the formal establishment. Since, to appear as a legal subject, the Association will be required to also have their domicile be registered and acquire a Tax ID Number for their tax responsibility. So prior to registering the Association, these responsibilities must be considered as key factors as to the registration will benefit the Association or just to create further responsibilities to comply.
Common needs for Association to formalize their incorporation and to be considered as a legal entity is usually when an Association needs to acquire : crowd funding/fundraiser, to open a bank account or to have tax incentives. Prior to registering the incorporation to be a legal entity; first is to better check whether Association’s purposes and activities as to the legal entity status will truly be required.
Institution : Non-Government Organization
Institution are commonly known as NGOs, as defined to group of citizens/people (society) formally organized and appear as an institution that mainly self-governing, private and non-profit. Simply say, the Institution (“Lembaga Swadaya Masyarakat/LSM”) is a social organization established by a group of people, commonly known as Civil Society Organization. Similar to Association, Institution is also not governed under a specific law or regulation, however a type of Institution that is Community Organization (“Organisasi Masyarakat/Ormas”) is stipulated under the Law of 16 year 2017. Institution is mainly recognized as another forms/types of Foundation; however it is very different in nature :
- Institution is established based on the decision of people gathering to create organization; whereas Foundation has separate assets between the founders and has no concept of membership.
- Institution are rarely chosen in practice due to its lack of regulations concerning its activities and conditions.
- Institution has no specific purposes, only focusing on non-profit. Whereas, Foundation has its purposes defined into either social, religious or non-profit humanity field.
- Institution has no specific regulated structures within the organization.
- Institution also has no detailed assets acquisitions terms and it’s distinctively different than Foundation.
To add and in accordance to the regulation, Institution will be required to have Article of Association and be registered and approved by the Ministry of Law and Human Rights. The activities, symbols and representing images of the Institution may not be in contradictory with Indonesian governed regulated law and constitution. It is known that Institution once the purposes of Institution is to provide a tools to do activities, not many restrictions are shown since it is basically saying the establishment is when people decide to gather and create organization. Therefore, the law shows that as long as it is in contradictory with the basic regulation and constitution, all forms of Institution are mostly accepted and acknowledged upon its establishment.
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From the aforementioned options of Non-Profit Organizations, the considerations prior to establishing will be depending on the needs and characteristics of the desired form of body. The responsibilities that will follow the organization types will also be a major factor for the intended organizations before incorporation.
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1, Jeff Atkinson and Martin Scurrah “Globalizing Social Justice; The Role of Non-Governmental Organizations in Bringing about Social Change.