Dividends and Distribution of Dividends in Limited Liability Companies

The primary purpose of establishing a Limited Liability Company is to generate maximum profits. These profits are then distributed to shareholders in the form of dividends. However, the definition of dividends itself is not explicitly regulated in Law Number 40 of 2007 concerning Limited Liability Companies ("Company Law") nor in Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation ("Job Creation Law").

Definition of Dividends According to the Indonesian Dictionary (KBBI), dividends are parts of a company's profit or income determined by the board of directors and ratified by the General Meeting of Shareholders (GMS) to be distributed to shareholders. Meanwhile, Yahya Harahap, in his book Limited Liability Company Law, defines dividends simply as "excess profit" over the capital that can be distributed to shareholders.

Legal Basis for Dividend Distribution The distribution of dividends is governed by the company's articles of association, as stipulated in Article 15 paragraph (1) letter i of the Company Law. These articles of association determine the procedures for the use of profits and dividend distribution. Additionally, Article 52 paragraph (1) of the Company Law emphasizes that the right to receive dividends depends on the number of shares owned by shareholders, as shares grant the right to dividend payments.

Provisions for Dividend Distribution Companies must consider several key provisions when distributing dividends:

1. Positive Retained Earnings According to Article 71 of the Company Law, all net profits after deductions for mandatory reserves must be distributed to shareholders as dividends, unless otherwise determined by the GMS. Dividends can only be distributed if the company has positive retained earnings. Positive retained earnings, as explained in Article 70 of the Company Law, refer to the company's net profits for the current fiscal year that have covered the accumulated losses from previous fiscal years.

2. Unclaimed Dividends In accordance with Article 73 of the Company Law, dividends that are not claimed within five years from the designated payment date will be included in a special reserve. The procedure for claiming dividends from this special reserve is determined by the GMS. If not claimed within 10 years, the dividends become the property of the company.

Importance of Articles of Association in Dividend Distribution The articles of association of each company serve as the primary reference for determining the procedures for dividend distribution. The amount of dividends distributed also depends on the number of shares owned by each shareholder. However, the GMS can establish other policies regarding profit distribution, including allocations for reserves or other uses of profits.

Conclusion When distributing dividends, companies must ensure the availability of positive retained earnings and comply with the provisions of their articles of association and the Company Law. Companies must also pay attention to the provisions regarding unclaimed dividends, as after a certain period, these dividends become the company's property.

This article is intended to provide general information on dividends and their distribution in companies. If you face issues or require legal assistance regarding dividends, Suria Nataadmadja & Associates Law Office is ready to assist you!