INDONESIA Law and Practice Contributed by: Alvin Suryohadiprojo and Dimas Nandaraditya, KARNA
There are also performance-based stock owner - ship programmes and tenure-based stock own - ership programmes that are designed to encour - age management and employees to stay longer in the company and continuously perform. 5.3 Taxation of Instruments Please refer to a tax adviser on this matter. 5.4 Implementation As both investment rounds and employee incen - tive programmes can lead to dilution for exist - ing shareholders, the terms are usually heavily negotiated as a package in a deal rather than negotiated separately. The establishment of an employee incentive programme such as ESOP is commonly done during early-stage funding or subsequent investment rounds. The participat - ing investor in the intended round usually negoti - ates the pool allocation with management – ie, some percentage in the company’s shareholding is allocated to be distributed for the employee incentive programme. Based on such alloca - tion, both the company and its investors would be able to expect the potential dilution on their ownership resulting therefrom. Some exit-related provisions include the inves - tors’ rights to direct an IPO or drag other share - holders to sell their shares to a qualified buyer. Commonly, the investors will stipulate a specific timeframe for the company to consider the pos - sibility of conducting an IPO or other exit events in the shareholders’ agreement. Once this time - frame has elapsed, the company will be required to appoint a professional adviser to report on exit opportunities and strategy, taking into account the viability and market conditions. 6. Exits 6.1 Investor Exit Rights
As a precautionary measure in case an IPO is not feasible, usually the investors would wish to have a drag-along right provision in the share - holders’ agreement. The right would enable a group of shareholders to force the remaining shareholders in the company to join in the sale of the company. The establishment and imple - mentation of such right can be based on: • a decision by a group of investors according to the agreed-upon ownership percentage under the shareholders’ agreement; or • whether the sale of company shares meets the agreed-upon valuation criteria under the shareholders’ agreement. The main characteristic of this drag-along right is that all shareholders will sell their shares under the same terms and conditions without any dis - crimination, including the applicable transfer price. Transfer restrictions typically include the right of first refusal (ROFR), tag-along right and a certain lock-up period for the founders. These transfer restrictions are also related to the investors’ position as minority shareholders in the com - pany, which is very common in the tech start-up world in order to give founders more room to innovate in advancing the company within cer - tain limitations set out by the investors. With ROFR, the non-transferring shareholders in a company have the right – but not the obliga - tion – to purchase the transferred shares before they are offered to any potential buyers (who are non-existing shareholders). This right gives the non-transferring shareholders the opportunity to maintain their stake and prevent unwanted or undesirable parties from gaining a foothold in the company. Under the prevailing Indonesian
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