Strengthening of Law Number 40 of 2007

Oct 13, 2025 by thesweetdesigns.com 60 views

Group Legal Responsibility for Group Losses as a Result of the Non-Independence of the Subsidiary

Introduction

In the world of business, group companies have become a popular choice due to their economic benefits. However, the regulation of group companies, based on the Limited Liability Company Law, has created a legal principle that allows the parent company to avoid legal responsibility for the actions taken by the subsidiary. This has led to a lack of understanding of the group's legal responsibilities, particularly in relation to losses experienced by third parties due to the non-independence of the subsidiary. In this article, we will explore the concept of group legal responsibility and its implications for third parties.

The Principle of Limited Liability

The parent company and subsidiaries are each recognized as a separate legal entity, functioning as a stand-alone legal entity. This means that the parent company cannot be directly charged with responsibility for legal actions or financial liabilities that cannot be met by subsidiaries. This aspect refers to the principle of 'limited liability' or limited responsibility that provides protection to the parent company from the legal claims faced by subsidiaries. However, this principle also leaves a legal gap that allows moral hazard - the situation in which the parent company can take a high risk safely because they will not directly bear the consequences.

The Theory of Legal Accountability

In this study, the theory of legal accountability was applied with a normative juridical approach and descriptive analytical through literature study. This study reveals an imbalance between economic and legal approaches in group corporations. The economic approach is more oriented to practical needs in the business environment, while legal approaches tend to be based on more conventional theories and norms. This discharge creates challenges in law enforcement and the protection of third parties who are harmed.

The Need for a Meeting Point between Economic and Legal Approaches

The difference in view between economic and legal approaches should not be maintained, given the growing business needs of the business world. Therefore, the search for a meeting point between the economic and legal approach is very vital to ensure justice and legal certainty. Strengthening of Law Number 40 of 2007 concerning Limited Liability Companies is very necessary in order to accommodate the development of existing business. In addition, the government and policy makers also need to pay more attention to the legal impact of the actions of the subsidiary to third parties, so that the rights of third parties are not neglected.

The Importance of Strengthening the Relationship between Parent Company and Subsidiaries

Finally, the relationship between the legal responsibility of the parent company and subsidiaries in the company group must be strengthened. This is not only to consider economic benefits, but also social responsibility and protection for third parties that can be disadvantaged due to actions that are not independent from subsidiaries. Changes in adaptive and responsive regulations are expected to be able to answer existing legal challenges and help create a more just and transparent business environment.

The Impact of Non-Independence of Subsidiaries on Third Parties

The non-independence of subsidiaries can have a significant impact on third parties, including customers, employees, and suppliers. When a subsidiary acts independently, it may engage in activities that are not in the best interests of the parent company, but may still harm third parties. In such cases, the parent company may not be held responsible for the actions of the subsidiary, leaving third parties without recourse.

The Need for Greater Transparency and Accountability

To address the issue of non-independence of subsidiaries, there is a need for greater transparency and accountability in the relationship between parent companies and subsidiaries. This can be achieved through the implementation of robust governance structures, including regular audits and reporting requirements. Additionally, parent companies should be required to disclose information about their subsidiaries, including their financial performance and any potential risks.

Conclusion

In conclusion, the non-independence of subsidiaries can have significant consequences for third parties, including losses and harm. The principle of limited liability, while providing protection to parent companies, also creates a legal gap that allows moral hazard. To address this issue, there is a need for a meeting point between economic and legal approaches, with a focus on strengthening the relationship between parent companies and subsidiaries. This can be achieved through the implementation of robust governance structures, greater transparency, and accountability.

Recommendations

Based on the findings of this study, the following recommendations are made:

Strengthening of Law Number 40 of 2007: The law should be strengthened to accommodate the development of existing business and to provide greater protection for third parties.
Greater Transparency and Accountability: Parent companies should be required to disclose information about their subsidiaries, including their financial performance and any potential risks.
Implementation of Robust Governance Structures: Parent companies should implement robust governance structures, including regular audits and reporting requirements.
Changes in Adaptive and Responsive Regulations: Changes in adaptive and responsive regulations are expected to be able to answer existing legal challenges and help create a more just and transparent business environment.

Future Research Directions

Future research should focus on the following areas:

The Impact of Non-Independence of Subsidiaries on Third Parties: Further research is needed to understand the impact of non-independence of subsidiaries on third parties, including customers, employees, and suppliers.
The Effectiveness of Governance Structures: Research should be conducted to evaluate the effectiveness of governance structures in preventing harm to third parties.
The Role of Parent Companies in Preventing Harm: Research should be conducted to understand the role of parent companies in preventing harm to third parties, including their responsibilities and obligations.

Limitations of the Study

This study has several limitations, including:

Limited Scope: The study only focuses on the non-independence of subsidiaries and its impact on third parties.
Limited Data: The study relies on secondary data, which may not be comprehensive or up-to-date.
Limited Generalizability: The study's findings may not be generalizable to other contexts or industries.

Conclusion

Introduction

In our previous article, we discussed the concept of group legal responsibility and its implications for third parties. We also highlighted the need for a meeting point between economic and legal approaches to ensure justice and legal certainty. In this Q&A article, we will answer some of the most frequently asked questions related to group legal responsibility and the non-independence of subsidiaries.

Q: What is group legal responsibility?

A: Group legal responsibility refers to the liability of a parent company for the actions of its subsidiaries. This includes financial liabilities, legal actions, and other obligations that may arise from the activities of the subsidiary.

Q: Why is the non-independence of subsidiaries a problem?

A: The non-independence of subsidiaries can lead to a lack of accountability and transparency in the relationship between parent companies and subsidiaries. This can result in harm to third parties, including customers, employees, and suppliers.

Q: What is the principle of limited liability?

A: The principle of limited liability is a legal concept that provides protection to parent companies from the financial liabilities of their subsidiaries. This means that the parent company is not directly responsible for the financial obligations of the subsidiary.

Q: How can the relationship between parent companies and subsidiaries be strengthened?

A: The relationship between parent companies and subsidiaries can be strengthened through the implementation of robust governance structures, including regular audits and reporting requirements. Parent companies should also be required to disclose information about their subsidiaries, including their financial performance and any potential risks.

Q: What are the consequences of non-independence of subsidiaries?

A: The non-independence of subsidiaries can have significant consequences for third parties, including losses and harm. This can include financial losses, damage to reputation, and even physical harm.

Q: How can the government and policy makers address the issue of non-independence of subsidiaries?

A: The government and policy makers can address the issue of non-independence of subsidiaries by strengthening the law and regulations related to group companies. This can include requiring parent companies to disclose information about their subsidiaries and implementing robust governance structures.

Q: What is the role of parent companies in preventing harm to third parties?

A: Parent companies have a responsibility to prevent harm to third parties by ensuring that their subsidiaries operate in a transparent and accountable manner. This includes implementing robust governance structures and disclosing information about their subsidiaries.

Q: How can third parties protect themselves from the non-independence of subsidiaries?

A: Third parties can protect themselves from the non-independence of subsidiaries by conducting thorough research and due diligence on the parent company and its subsidiaries. They should also be aware of the potential risks and consequences of dealing with a subsidiary that is not independent.

Q: What are the future research directions in this area?

A: Future research should focus on the impact of non-independence of subsidiaries on third parties, the effectiveness of governance structures, and the role of parent companies in preventing harm to third parties.

Q: What are the limitations of this study?

A: This study has several limitations, including a limited scope, limited data, and limited generalizability.

Conclusion

Frequently Asked Questions

Q: What is group legal responsibility?
A: Group legal responsibility refers to the liability of a parent company for the actions of its subsidiaries.
Q: Why is the non-independence of subsidiaries a problem?
A: The non-independence of subsidiaries can lead to a lack of accountability and transparency in the relationship between parent companies and subsidiaries.
Q: What is the principle of limited liability?
A: The principle of limited liability is a legal concept that provides protection to parent companies from the financial liabilities of their subsidiaries.
Q: How can the relationship between parent companies and subsidiaries be strengthened?
A: The relationship between parent companies and subsidiaries can be strengthened through the implementation of robust governance structures, including regular audits and reporting requirements.

Glossary

Group legal responsibility: The liability of a parent company for the actions of its subsidiaries.
Non-independence of subsidiaries: The lack of accountability and transparency in the relationship between parent companies and subsidiaries.
Principle of limited liability: A legal concept that provides protection to parent companies from the financial liabilities of their subsidiaries.
Robust governance structures: The implementation of regular audits and reporting requirements to ensure accountability and transparency in the relationship between parent companies and subsidiaries.