The Concept of Alter Ego and Piercing the Corporate Veil

Oct 13, 2025 by thesweetdesigns.com 123 views

Introduction

The concept of piercing the corporate veil has been a topic of discussion in the field of corporate law, particularly in Indonesia. This doctrine allows the court to look beyond the corporate structure and hold shareholders responsible for their actions. However, the application of this concept in Indonesia faces many challenges, mainly due to difficulties in linking illegal actions taken by shareholders with certain actions (actus reus) and proves evil intentions (mens rea) from abstract entities such as companies that have shareholders. In this article, we will discuss the standard responsibility of bank shareholders based on piercing the corporate veil in Indonesia.

Background

Law Number 40 of 2007 concerning Limited Liability Companies regulates the responsibility of shareholders in company activities. However, existing arrangements often appear inconsistent and bring up confusion in the application of legal norms. The doctrine of separate legal personality provides that shareholders are only responsible for their investment in the company, while the doctrine of piercing the corporate veil provides the possibility that shareholders can be held accountable to their personal property in certain cases such as fraud, inadequate capital, failure to meet the formality of company establishment, and abuse of power by one or more shareholders (Alter Ego).

The Concept of Alter Ego and Piercing the Corporate Veil

The concept of alter ego refers to a situation where a shareholder is considered to be the same as the company, and therefore, their actions are attributed to the company. This concept is often used in cases where a shareholder has abused their power or has engaged in fraudulent activities. The doctrine of piercing the corporate veil allows the court to look beyond the corporate structure and hold shareholders responsible for their actions.

Challenges in Applying the Doctrine of Piercing the Corporate Veil in Indonesia

The application of the doctrine of piercing the corporate veil in Indonesia faces many challenges. Firstly, the court often struggles to link the actions of shareholders with the company's actions. Secondly, the court may not have enough evidence to prove that the shareholder's actions were intentional and not just a result of negligence. Finally, the court may not have the necessary expertise to apply the doctrine of piercing the corporate veil in a way that is consistent with international standards.

The Role of the Judicial Institution in Applying the Doctrine of Piercing the Corporate Veil

The judicial institution plays a crucial role in applying the doctrine of piercing the corporate veil. The Supreme Court Regulation No. 13 of 2016 concerning Procedures for Handling Crimes by Corporations provides a framework for the court to apply the doctrine. The regulation explicitly recognizes the responsibility of shareholders based on piercing the corporate veil, as regulated in Article 4 paragraph (2). In determining the error of a corporation, the judge must consider aspects such as the benefits obtained from criminal acts, negligence in preventing criminal acts, and failure to comply with applicable legal provisions.

Adapting Court Standards from the United States into the Context of Indonesian Law

To overcome the challenges in applying the doctrine of piercing the corporate veil in Indonesia, it is essential to adapt court standards from the United States into the context of Indonesian law. For example, in the case of United States vs. Bank of New England (1987), the bank is accused of not reporting currency transactions, and this is proven based on the collective knowledge of the authorized employees. Thus, the application of this standard can help clarify the responsibility of shareholders in the corporate context in Indonesia.

Conclusion

In conclusion, the standard responsibility of bank shareholders based on piercing the corporate veil in Indonesia is a complex issue that requires careful consideration of the doctrine of alter ego and piercing the corporate veil. The judicial institution plays a crucial role in applying the doctrine, and adapting court standards from the United States into the context of Indonesian law can help clarify the responsibility of shareholders in the corporate context. Further research is needed to provide more detailed arrangements regarding alter ego and piercing the corporate veil in Indonesian laws and regulations.

Recommendations

Based on the analysis, the following recommendations are made:

The judicial institution should refer to the Supreme Court Regulation No. 13 of 2016 concerning Procedures for Handling Crimes by Corporations in applying the doctrine of piercing the corporate veil.
The court should consider aspects such as the benefits obtained from criminal acts, negligence in preventing criminal acts, and failure to comply with applicable legal provisions in determining the error of a corporation.
The court should adapt court standards from the United States into the context of Indonesian law to clarify the responsibility of shareholders in the corporate context.
Further research is needed to provide more detailed arrangements regarding alter ego and piercing the corporate veil in Indonesian laws and regulations.

Limitations of the Study

This study has several limitations. Firstly, the study only focuses on the doctrine of piercing the corporate veil and does not consider other relevant doctrines such as alter ego. Secondly, the study only analyzes the laws and regulations in Indonesia and does not consider international standards. Finally, the study only provides a general overview of the doctrine and does not provide a detailed analysis of specific cases.

Future Research Directions

Future research should focus on the following areas:

Providing more detailed arrangements regarding alter ego and piercing the corporate veil in Indonesian laws and regulations.
Analyzing specific cases to provide a more detailed understanding of the doctrine of piercing the corporate veil.
Considering international standards and adapting court standards from the United States into the context of Indonesian law.
Examining the role of the judicial institution in applying the doctrine of piercing the corporate veil.

References

Supreme Court Regulation No. 13 of 2016 concerning Procedures for Handling Crimes by Corporations.
Law Number 40 of 2007 concerning Limited Liability Companies.
United States vs. Bank of New England (1987).
Various articles and books on the doctrine of piercing the corporate veil and alter ego.
Q&A: Standard Responsibility of Bank Shareholders Based on Piercing the Corporate Veil in Indonesia =============================================================================================

Q: What is the doctrine of piercing the corporate veil?

A: The doctrine of piercing the corporate veil is a legal concept that allows the court to look beyond the corporate structure and hold shareholders responsible for their actions. This doctrine is often used in cases where a shareholder has abused their power or has engaged in fraudulent activities.

Q: What is the role of the judicial institution in applying the doctrine of piercing the corporate veil?

A: The judicial institution plays a crucial role in applying the doctrine of piercing the corporate veil. The Supreme Court Regulation No. 13 of 2016 concerning Procedures for Handling Crimes by Corporations provides a framework for the court to apply the doctrine. The regulation explicitly recognizes the responsibility of shareholders based on piercing the corporate veil, as regulated in Article 4 paragraph (2).

Q: What are the challenges in applying the doctrine of piercing the corporate veil in Indonesia?

A: The application of the doctrine of piercing the corporate veil in Indonesia faces many challenges. Firstly, the court often struggles to link the actions of shareholders with the company's actions. Secondly, the court may not have enough evidence to prove that the shareholder's actions were intentional and not just a result of negligence. Finally, the court may not have the necessary expertise to apply the doctrine of piercing the corporate veil in a way that is consistent with international standards.

Q: How can the court determine the error of a corporation?

A: In determining the error of a corporation, the judge must consider aspects such as the benefits obtained from criminal acts, negligence in preventing criminal acts, and failure to comply with applicable legal provisions.

Q: What is the importance of adapting court standards from the United States into the context of Indonesian law?

A: Adapting court standards from the United States into the context of Indonesian law can help clarify the responsibility of shareholders in the corporate context. For example, in the case of United States vs. Bank of New England (1987), the bank is accused of not reporting currency transactions, and this is proven based on the collective knowledge of the authorized employees.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only focuses on the doctrine of piercing the corporate veil and does not consider other relevant doctrines such as alter ego. Secondly, the study only analyzes the laws and regulations in Indonesia and does not consider international standards. Finally, the study only provides a general overview of the doctrine and does not provide a detailed analysis of specific cases.

Q: What are the future research directions?

A: Future research should focus on the following areas:

Providing more detailed arrangements regarding alter ego and piercing the corporate veil in Indonesian laws and regulations.
Analyzing specific cases to provide a more detailed understanding of the doctrine of piercing the corporate veil.
Considering international standards and adapting court standards from the United States into the context of Indonesian law.
Examining the role of the judicial institution in applying the doctrine of piercing the corporate veil.

Q: What are the recommendations for the judicial institution?

A: Based on the analysis, the following recommendations are made:

The judicial institution should refer to the Supreme Court Regulation No. 13 of 2016 concerning Procedures for Handling Crimes by Corporations in applying the doctrine of piercing the corporate veil.
The court should consider aspects such as the benefits obtained from criminal acts, negligence in preventing criminal acts, and failure to comply with applicable legal provisions in determining the error of a corporation.
The court should adapt court standards from the United States into the context of Indonesian law to clarify the responsibility of shareholders in the corporate context.
Further research is needed to provide more detailed arrangements regarding alter ego and piercing the corporate veil in Indonesian laws and regulations.