Pay Attention to These 7 Aspects when Preparing a Commercial Contract in Indonesia

As a business owner, you should know that business deals in Indonesia cannot be based simply on a promise or a simple handshake. If you run your business solely on verbal trust, you are leading your business to unwanted danger. A thorough and well-written commercial contract is undoubtedly necessary in Indonesia to protect your business from unwanted negative consequences.

Having a commercial contract in place for any business transaction allows you to manage and mitigate risks that may occur in the future. In addition, a commercial contract is a black-and-white record for all agreed deals, serving as a proof of obligations and rights among parties if unforeseeable disputes arise in the future. All terms and agreements in the commercial contracts in Indonesia are regulated based on the Indonesia Civil Code (Kitab Undang-Undang Hukum Perdata).

Commercial Contract in Indonesia: 7 Essential Aspects

To make sure your business is under protection, here are the 7 aspects you should consider when preparing a commercial contract in Indonesia.

1. Under the Business Transaction

For all business deals, you need to know whether a transaction is permitted under Indonesia Law. For instance, a foreigner is prohibited to own a land directly in Indonesia.

2. Get to the Person in Charge

You should not waste time negotiating a business agreement with an employee who has no direct authority in the business deal. In accordance with Company Law in Indonesia, the only person who can represent a company and sign in an agreement or contract is the company’s director. Therefore, remember to be in touch with the right person.

3. Be Clear on the Termination Details

It is always best to set out clear circumstances and conditions for contract termination. This may prevent future disputes before they can even happen. For instance, according to Indonesian Civil Code, if one party fails to fulfill an important deadline, the other party can terminate the failed party in 14 days.

4. Ensure Payment Obligations are Included

Clear payment terms are key to successful business agreement. Always make sure all payment details and conditions are specified: due date, payment term, payment due date, payment method, etc.

5. Take Local Language into Consideration

According to Agreement Law in Indonesia, the national language, Indonesian, must be used in all agreements, contracts, and memorandums in Indonesia. Therefore, it is wise for businesses in Indonesia to draft their commercial contracts bilingually with Indonesian as one of the languages in the contracts.

6. Resolve Disputes Cost-effectively

If disputes do happen, make sure you include a clause about dispute resolutions. Pick the right dispute settlement institution such as arbitration, as you do not want to get stuck litigating your dispute in a state court that will take much longer time.

7. Keep it Confidential

You definitely want to include a confidentiality clause such as non-disclosure clause in your agreement, especially when the other party has access to your commercial contract. Doing this will prevent the other parties from leaking your private and important information to the world. For example, when the other party breaches this provision, you can punish the said party according to the details set out in the agreement.

How Cekindo can Help

Cekindo can help you draft a solid commercial contract in Indonesia that protects the interests of all parties involved in the deal. We provide agreement drafting and reviewing for both legal agreements and standard business agreements.

To start drafting your commercial agreement now, you can head to our Cekindo office, either in Jakarta, Bali, or Semarang.

For more information, you can send us an enquiry by filling in the form below.