Introduction: Why Companies Close Entities (But Keep Talent)
In today’s fluctuating business landscape, mid‑sized companies often shutter local entities in markets like Indonesia to trim costs, respond to restructuring, or refocus resources. Yet, closing a local entity doesn’t mean losing your people. High‑performing local employees are critical for maintaining relationships, knowledge, and momentum—especially across Asia.
This guide shows how you can close a company in Indonesia while avoiding talent attrition. You'll learn about legal requirements, employee risks, and how Employer of Record (EOR) in Indonesia helps you hire in Indonesia without entity and smoothly transfer employees after entity closure.
What Happens When You Close a Company in Indonesia
Legal & Compliance Obligations
Indonesia requires a structured dissolution process under its Limited Liability Company Act No. 40 of 2007
- Shareholders Meeting and resolution to dissolve.
- Appoint a liquidator, often by GMS.
- Public Announcement in newspaper and State Gazette within 30 days
- Asset/Liability Settlement and tax clearances via Ministry of Law & Human Rights (MoLHR) and Directorate General of Taxes
- Revocation of Licenses, including BKPM for foreign investments
This process can take between 12 to 24 months, depending on complexity and compliance .
Employee Obligations
Indonesia enforces strict labor laws under Law No. 13/2003 (amended by Law No. 6/2023):
- Notice: At least 14 working days (7 during probation) prior to termination
- Valid Grounds: Company closure (PHK redundancy), asset loss, M&A, etc.
- Severance & Service Pay: Up to 9 months’ salary, long‑service pay, and benefit compensation based on tenure
Failing to comply risks employee disputes and delays in liquidation.
Risks of Talent Loss During Entity Closure
Disruption to IP, Operations & Customer Relations
- Knowledge Drain: Losing staff who understand local operations.
- Client Disconnection: Relationship shifts can harm revenue and brand.
Loss of Local Expertise
- Indonesia’s operating complexity demands local fluency across compliance, labor and the plug-and-play you will lose if people leave.
Re‑Entry Cost
- Re‑hiring later means ramp‑up delays and high costs.
Retaining Employees Without a Legal Entity: Your Options
1. Independent Contractors
- Pros: Fast to set up.
- Cons: High misclassification risk, no MPF/equivalent benefits, contractor laws
2. Setting Up a New Company
- Pros: Full control.
- Cons: 3–6 months process, requires local directors, costly licensing and infrastructure.
3. Best Practice: Employer of Record (EOR)
- Pros: Compliant employment without entity, full statutory benefits.
- Cons: Requires engaging a trusted partner like AYP.
👉 Learn more about AYP’s Employer of Record Indonesia service.
How EOR Helps You Retain Employees in Indonesia
What is an EOR?
An Employer of Record is a local partner who:
- Becomes legal employer in Indonesia.
- Manages contracts, payroll, insurance, severance, and statutory benefits.
- Handles compliance, taxes, and labor filings—all under local law.
Transition Workflow
- Pre-closure planning: Identify employees to retain.
- Terminate local contracts with notice, then immediately rehire via AYP.
- Continuity: AYP ensures uninterrupted payroll, benefits, and local statutory protections.
- Day-to-day control remains with your HQ; AYP handles admin and compliance.
This strategy ensures you can retain employees without entity, hire in Indonesia without entity, and transfer employees after entity closure neatly.
AYP’s Advantage
- Fast Setup: Onboarding completed within 3–5 business days.
- Local Compliance: Expertise in Indonesian labor, tax, and employment law.
- Regional Reach: ISO-certified and trusted across Asia.
Explore our full EOR Indonesia solution.
Case Study: Retaining a Team After Entity Closure
Company: Singapore-headquartered FMCG firm
Employees: 10 in Indonesia
Reason: Consolidation of Indonesian operations, maintaining client support.
Solution: Partnered with AYP for EOR before initiating closure.
Outcome:
- 100% retention of key staff.
- Zero operational disruption; clients unaffected.
- Seamless transition with statutory benefits, no notice gaps.
- Entity fully liquidated within 14 months.
“Switching to AYP’s EOR solution meant we kept our staff and our client trust intact, without the burden of entity maintenance.” – Regional HR Leader
Key Considerations Before Closing an Entity
1. Timing
Start EOR transition before issuing notices to avoid compliance pitfalls.
2. Legal Compliance
You've got to align severance, notice and labor court processes—especially for employee transfer after entity closure.
3. Communication & Morale
- Be transparent on transition plans.
- Highlight continued employment and benefits.
- Coordinate onboarding for smooth handover.
4. HR & Payroll Planning
- Switch payroll systems early.
- Ensure benefits and tax continuity.
- Reinforce retention with clarity and support.
Conclusion: Close Smart, Keep Your Team
Closing your Indonesian entity doesn’t have to mean losing your local talent. By leveraging an Employer of Record:
- You minimize compliance risk,
- Avoid redundancy costs,
- Maintain regional presence, and
- Preserve valuable relationships and knowledge.
With a strategic EOR transition, you can close a company in Indonesia confidently and retain employees without entity—keeping operations steady and future-ready.
Call to Action: Speak to AYP’s Local Experts
Ready to keep your Indonesian team intact while closing the entity?
✅ Schedule a free EOR + closure consultation
✅ Get a complimentary cost simulation
✅ Learn how AYP can onboard your team in days
Retain Your Team Without a Local Entity →
