Legal protection for shareholders in Indonesia remains weak when companies suffer losses caused by directors’ decisions, according to a study conducted by Muhammad Rizki Siregar and Muhammad Syukran Yamin Lubis from Universitas Muhammadiyah Sumatera Utara. Published in 2026 in the International Journal of Education and Life Sciences (IJELS), the study highlights how the Business Judgment Rule (BJR) is frequently used by company directors as a legal shield to avoid personal responsibility for business decisions that result in corporate losses and shareholder harm.
The research explains that within Indonesia’s limited liability company system, ownership and management functions are separated. Directors hold broad authority over daily corporate operations, while shareholders have limited control through the General Meeting of Shareholders (GMS). This structure creates significant potential for agency problems, especially when directors prioritize personal or group interests over the interests of the company itself.
According to the study, Indonesia’s Company Law formally requires directors to perform their duties in good faith, with responsibility, and with professional diligence. If corporate losses result from directors’ negligence or misconduct, shareholders theoretically have the right to pursue personal liability claims against directors under the doctrine of fiduciary duty.
In practice, however, many directors rely on the Business Judgment Rule, a legal doctrine designed to protect directors from liability as long as business decisions are made in good faith and without conflicts of interest. The researchers argue that the implementation of this doctrine in Indonesia has become excessively broad, often functioning as a form of “legal immunity” that makes it difficult for shareholders to prove negligence or abuse of authority.
The study found that courts often struggle to evaluate the subjective element of “good faith” in corporate decision-making. As a result, major corporate losses are frequently categorized as ordinary business risks even when there are indications of inadequate caution, hidden conflicts of interest, or strategic decisions made without sufficient due diligence.
To examine the limits of directors’ liability, the researchers applied E. Utrecht’s theory of Tortious Acts (Perbuatan Melawan Hukum / PMH). Under this theory, an act may be considered unlawful not only when it violates written law, but also when it conflicts with principles of propriety, professional diligence, and legal obligations that should reasonably be fulfilled. Based on this perspective, directors who make high-risk decisions without adequate due diligence may still be held personally liable even if they attempt to invoke BJR protection.
The study also criticizes the weak effectiveness of the derivative action mechanism, which allows shareholders to sue directors on behalf of the company. Under Indonesia’s Company Law, such lawsuits may only be filed by shareholders holding at least 10 percent of voting shares. Researchers argue that this ownership threshold is too burdensome for retail investors and minority shareholders.
High litigation costs further discourage shareholders from pursuing legal action. The study notes a significant imbalance because directors may use corporate resources to finance their legal defense, while shareholders must bear litigation expenses personally. As a result, many alleged cases of director misconduct never reach judicial examination.
Based on these findings, the researchers proposed several major reforms:
- lowering the ownership threshold for derivative lawsuits,
- strengthening legal standards for evaluating directors’ good faith,
- encouraging courts to apply the piercing the corporate veil principle,
- and introducing litigation cost reimbursement mechanisms for successful shareholder claims.
According to Muhammad Rizki Siregar and Muhammad Syukran Yamin Lubis, investor protection cannot rely solely on formal regulations but also requires progressive law enforcement and judicial willingness to expose abuses of managerial authority. The study argues that stronger director accountability is essential for creating a transparent, sustainable, and trustworthy investment climate in Indonesia.
The findings are considered increasingly relevant amid the rapid growth of public investment and Indonesia’s expanding capital market. A stronger shareholder protection system is viewed as a key factor in improving investor confidence and strengthening corporate governance standards nationwide.
Author Profiles
- Muhammad Rizki Siregar - Universitas Muhammadiyah Sumatera Utara
- Muhammad Syukran Yamin Lubis - Universitas Muhammadiyah Sumatera Utara
Research Source
Siregar, M.R., & Lubis, M.S.Y. (2026). Legal Protection for Shareholders Against Losses to Limited Liability Companies Due to the Actions of the Board of Directors. International Journal of Education and Life Sciences (IJELS), Vol. 4 No. 4, 480–489.
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