The Governance Gap: Why Holding Startup Leaders Accountable Isn’t Always Easy in Indonesia

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A startup raises hundreds of millions of dollars. The business is growing very fast. Investors are interested in investing. The founder appears on magazine covers. But then everything falls apart.

Suddenly, people start asking the question, Who’s actually responsible for this problem?

In Indonesian startups, that question is harder to answer. Not because the law doesn’t exist, we know it does. But because of how startups are built, funded, and run. That’s what we call the governance gap and it matters more than most people realize.

A Startup Is Legally Just a Company Until Investors Arrive

Many people think that startups operate under their own legal framework. Here’s something most people don’t know, Indonesian law does not recognize a startup as a separate type of business entity. Most startups are established as ordinary limited liability companies (Perseroan Terbatas or PT), which means they follow the same rules as any other company.

But, the legal landscape changes significantly once venture capital investors come in.

Besides providing funding, investors also expect transparency, regular reporting, and stronger internal governance. These expectations often go beyond the minimum standards required under company law. While the company’s legal structure remains the same, founders are expected to meet much higher standards of accountability. This is where governance challenges often begin to emerge.

Who Really Makes the Decisions?

Under Indonesian Company Law, directors are responsible for managing the company. They are expected to act in good faith, exercise due care, and prioritize the company’s interests. These responsibilities are commonly referred to as fiduciary duties.

At the same time, directors are not automatically liable because a business decision turns out badly. The Business Judgment Rule recognizes that entrepreneurship involves risk, and the law generally protects directors who make informed decisions honestly, in good faith, and without conflicts of interest.

The situation becomes more complicated when there are allegations of negligence or self dealing. Startups often operate at high speed, documentation may be incomplete, and important decisions are sometimes made under considerable pressure. In those cases, determining whether a director acted responsibly can be legally challenging.

The issue becomes even more complex when investors negotiate Shareholders’ Agreements that give them approval rights over major corporate decisions. As a result, directors may formally manage the company while investors still can influence the company’s strategic direction. If something goes wrong, identifying who truly had the power to prevent the problem can be difficult.

Ownership Does Not Always Mean Control

Another common misconception is that the largest shareholder always exercises the greatest control over the company.

In reality, a founder who originally owned 80% of a startup may hold only 20% after several funding rounds while continuing to serve as CEO and manage the company’s day-to-day operations.

Ownership structures can become even more complex because Indonesian corporate law allows different classes of shares. Preferred shareholders, for example, may enjoy stronger voting rights or special protections despite owning fewer shares than the founder.

The picture becomes even less clear when startups use investment instruments such as SAFE agreements or convertible notes. Since these instruments convert into shares at a later stage, ownership may remain uncertain until the conversion takes place. If the documentation is incomplete or poorly maintained, disputes over ownership can easily arise. When ownership itself becomes unclear, accountability often becomes just as difficult to determine.

Investors Can Only Monitor What They Can See

Effective accountability depends on reliable information.

For that reason, investors commonly negotiate Information Rights, which require management to provide financial statements and operational updates regularly. In theory, these rights allow investors to monitor the company’s performance and identify potential risks early.

In practice, however, the quality of the information still depends largely on management. Unlike publicly listed companies, private startups are generally not subject to continuous regulatory oversight or ongoing public disclosure requirements. If management withholds material information or provides incomplete reports, investors may not realize that problems exist until the damage has already become substantial.

This imbalance of information, commonly known as information asymmetry, remains one of the most persistent governance challenges facing startup companies.

Digital Businesses Carry Additional Legal Responsibilities

Governance in technology startups extends beyond financial accountability. Many Indonesian startups collect and process large amounts of users’ personal data, creating additional legal obligations.

Companies operating digital platforms are generally required to register as Electronic System Providers (PSE) and comply with Indonesia’s Personal Data Protection Law of 2022. Compliance includes obtaining valid user consent, implementing appropriate security measures, and reporting certain data breaches when required by law.

If a serious data breach occurs because management failed to fulfill these obligations, the consequences extend far beyond reputational damage. Directors may also face personal legal liability depending on the case.

This demonstrates that accountability in digital startups is not limited to protecting investors’ capital. It also includes safeguarding the rights and personal data of millions of users.

Why Does This Matter?

Governance failures do not only hurt investors. They can discourage foreign investors from entering the market, weaken local investors’ confidence in the next generation of startups, and damage public trust in digital services.

Indonesia’s startup ecosystem has already proven that it can grow rapidly.

The harder question, the one this series keeps asking, is whether it can grow accountably.

Written by Reyna Charisse | Edited by Maria Sutjipto & Gadini Irawatie