7 Aspects To Be Noted When Making Commercial Contract In Indonesia

It is true that business deals emerge from mutual trust of involved parties of the transaction, therefore an oral agreement also can be classified as a legal promise of each party to perform their obligation. However, oral agreements are often difficult to enforce in court and sometimes they are not enforceable at all. Therefore, having a written commercial contract is very important in business.

At least 2 (two) important benefits of having written commercial contracts in business world. Firstly, the parties may have an opportunity to mitigate and manage risks that might arise in the future. Secondly, the commercial contract will record all agreed deals, so if any dispute arises in the future, the contract can be an evidence to prove rights and obligations of both parties.

Apart from that, knowledge regarding transactions and applicable regulation of the country where the contract is made are also important since every country in this world has different regulations not only about the contract itself but also the matters covered by contract. Basically contract law in Indonesia is regulated in Indonesia Civil Code (Kitab Undang-Undang Hukum Perdata – “Civil Code”), and the transactions that will be covered in the contract are regulated on specific regulations.

In this article, we will provide you with 7 Aspects To Be Noted When Making Commercial Contract In Indonesia.

1)   Know the transaction

Ensure the proposed transaction is allowed by Indonesian Law. For example,as a non-Indonesian citizen you are not permitted to own a land in Indonesia. This is caused Indonesian Agrarian Law prohibits Foreigner to have direct freehold ownership of land in Indonesia (which will be registered as Freehold Title, known as SHM or Sertifikat Hak Milik) . Therefore if you are still want to have a resort in Indonesia you must try another scheme.

2)   Deal with the right person

Once you are sure with the transaction, then you must ensure that the counterpart is the authorized party and has rights to engage with you. For example, pursuant to Indonesian Company Law, the authorized party to sign and represent a company in a contract is a Director of the company. Therefore, to find out that party authorized or not you must request and read the Articles of Association (“AoA”) and the latest amendment of the AoA of the Counterpart, if his/her the name is stated in the AoA’ then the he/she is the authorized party.

3)  Specify payment obligations

Money always be a contentious issues, event when contract was  already made. Therefore when it comes to money, you must be details, specify who pays whom, when the payments must be made, and the conditions for making payments. In general Indonesian Law gives freedom for each party to set the term of payment as long as  mutually agreed by the parties.

4)   Pay attention on termination clause

Abrupt termination is not good for any form of business, therefore you must give attention on this matter, not only how to do it but also in what condition termination can be done. For example, if one party fails to fulfill important deadline then termination can be done by 14 days prior notification to the failed party. Please be informed that based on Article 1266 Civil Code, any termination of agreement should based on judicial decision. However Article 1266 Civil Code can be waived if the parties agree to waive it and it must be stated clearly in writing.

5)   Pick cost-effective dispute settlement institution

No one wants to have a dispute on their business, but as mentioned-above, the purpose of a contract is to manage risk, therefore the dispute resolution must be agreed since the contract is drafted. In Indonesia, it is public secret that settling a commercial dispute in a state court will take longer time, thefore consider the other options of the dispute settlement institution, such as arbitration or through mediation tribunal.

6)   Take a notice with law and language

If you and your counterpart are on the different countries, then you should notice the law that will govern your contract. To give you an easiness in the future, choose the law that you know and understand well.

Further, regarding the language on the contract, Law No. 24 of 2009 on State Flag, the National Language, the National Emblem and The National Anthem requires Indonesian language to be used in a memorandum, agreement or contract which involves Indonesian government institutions, Indonesian private entities or Indonesian citizens. To deal with this Law we often make the commercial contract in bilingual, once the contract is made with foreign language then the contract will be null and void.

7)   Keep it Confidential

In business, information is valuable matters. In contract, many information is widely open, everyone can now the parties, the transaction and other company  secret. Sometimes, when one party hires another firm or outsource a service to support the transaction, this kind of information can be accessed easily. Therefore, it is important to put non disclosure clause on your commercial contract or attach the  Non Disclosure Agreement to the main agreement.



SMART Legal Consulting has extensive experience in assisting individuals and companies, both Indonesian or non-Indonesian entities to review existing contract of develop a new one.

If you need immediate assistance, please contact the SMART Help Desk at:


H: +62821-1234-1235


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