Nominee Agreement, Illegal but Still Commonly Used in Indonesia

A Nominee Agreement, or a name-lending agreement, is a type of innominate contract, meaning a type of agreement that arises, develops, and is practiced in society but is not explicitly stated in Civil Law.

Nominee agreements are often used by both foreigners (WNA) and locals (WNI) for ownerships of shares, land, and buildings in Indonesia. The purpose of creating such an agreement is usually to "conceal" the actual owner of the shares, land, or buildings by using someone else's name, making this action usually considered as a form of circumvention.

According to Article 1320 of the Civil Code, a nominee agreement is categorized as an invalid cause, making it an invalid agreement as well. Therefore, nominee agreement is considered illegal and not protected by the applicable laws in Indonesia, meaning that all parties involved in this agreement cannot claim their rights and obligations stipulated in the agreement.

Although this is well-known, in practices, many still use nominee agreements as an alternative to address their issues.

What are the Risks of Using a Nominee Agreement?

Because nominee agreements are not protected by the laws in Indonesia, here are some risks that may occur for those who still use nominee agreements:

1. All parties involved in a nominee agreement, whether foreigners (WNA) or locals (WNI), are not recognized by Indonesian laws because the agreement itself is not considered as a valid agreement / contract from the outset
2. All parties listed in the nominee agreement, whether foreigners (WNA) or locals (WNI), cannot claim the rights and obligations stipulated in the nominee agreement legally
3. The person whose name is borrowed and listed in official documents stating the ownership of the asset, such as Notary Deed or Land Certificate, has full right to transfer the asset ownership freely without the consent of the person who borrowed the name
4. If the person whose name is borrowed violates any terms stated in the nominee agreement, the person who borrowed the name cannot sue the other party because the agreement itself is not protected by the laws in Indonesia

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