When a Listed Company Does a Deal With Its Own Controlling Shareholder, a Specific Rule Forces It to Tell You
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6 min read
Imagine you own shares in a listed company. One day it rents a building from a company owned by its biggest shareholder. Or it lends money to that shareholder's other business.
Is that fair? Or is the company you own being used to help someone else?
Indonesia has a rule for exactly this. It is called the related party transaction rule, and it decides what the company must tell you and when you get a vote. This guide explains it in plain words. It is based on the summaries of OJK Regulation 42/POJK.04/2020 published by law firms and on real company filings.
A related party transaction is a deal between a listed company and someone close to it.
"Close" is defined by the rule. It can be a company's own directors and commissioners. It can be a major shareholder or the controlling shareholder. It can be a family member of those people, or another company under the same owner.
In Indonesian rules the word for "close to" is affiliate (afiliasi). So you will see these deals called "transaksi afiliasi" in company filings.
Why does it matter? Because two friendly parties can set a price that is too high or too low. An unfriendly outsider would not agree to those terms. The rule exists to make sure the price looks like one that strangers would have agreed to. Finance people call that arm's length.
The rule splits these deals into two groups. This is the key idea.
1. Affiliated transaction. The company deals with a related party. The terms may be fine. The rule says: be open about it.
2. Conflict of interest transaction. Someone with power over the company has a personal economic interest in the deal that clashes with the company's interest. This is riskier. The rule says: the outside shareholders must approve it.
Law firm summaries of the rule also say it widened the definition. It now covers deals a company makes for the benefit of its affiliates, directors, commissioners, substantial shareholders or controlling shareholder.
Here is the process, step by step.
Check the price against strangers. The company must have internal procedures. They must compare the deal's terms with similar deals done with unrelated parties. This is how the arm's length test gets applied in practice.
Get an independent valuation. The company must use an independent appraiser (penilai) to judge the fair value of the deal, or whether the deal is fair, and it must announce the deal to the public. This comes from Article 4(1) of the rule, as described by Indonesian legal summaries.
Tell the public and OJK. The company publishes a disclosure document (keterbukaan informasi) and sends it to OJK, Indonesia's financial regulator. When no shareholder vote is needed, the summaries say the company must disclose within two business days after the deal.
Hold a vote if there is a conflict of interest. More on this next.
Only for conflict of interest deals, and only for independent shareholders.
An independent shareholder is someone who:
So the controlling shareholder cannot vote on its own deal. That is the whole point.
The meeting is valid only if independent shareholders holding more than half of the independent voting shares attend. The deal passes only if independent shareholders holding more than half of those shares approve. These quorum and approval numbers come from a law firm summary of the rule.
Put simply, the people who would benefit do not get to decide. The people who would be hurt do.
Not every deal needs the full process.
According to filings that cite Article 6(1)(c) of the rule, a deal is exempt from several steps if it is small. Small means it does not exceed 0.5% of the company's paid-up capital, or Rp5 billion, and the lower of the two applies. Paid-up capital (modal disetor) is the money shareholders have put into the company's shares.
For such deals, the company only has to report to OJK within two business days.
Here is an invented example to show the "lower of" idea. It is not a real company.
| Company A | |
|---|---|
| Paid-up capital | Rp400 billion |
| 0.5% of paid-up capital | Rp2 billion |
| Fixed cap | Rp5 billion |
| The lower of the two | Rp2 billion |
A Rp1.5 billion deal with a related party would count as small. A Rp3 billion deal would not, even though it is under Rp5 billion.
The rule also exempts some other cases, such as deals between two companies where the parent owns at least 99% of the shares, as described in company filings. Check the rule text or a lawyer for the full list.
You do not need to read a law. You need to read the company's announcements.
Look for these words in an IDX filing: transaksi afiliasi, benturan kepentingan, penilai independen, RUPS independen.
Then ask three simple questions:
A deal with a related party is not automatically bad. Many are normal, such as a group company supplying materials. What you want to see is a fair price and a clear process.
If you want to see which listed companies are large and actively traded before you start reading their filings, open the NetWort market page. Pick a company you own and read its latest disclosures with the three questions above.
Related reading: insider trading rules on the IDX cover trading on secret information. The mandatory tender offer covers what happens when control changes hands.