table of contents
Share This Story, Choose Your Platform!
ontracts are the legal backbone of every business relationship. Whether you’re partnering with a supplier, hiring staff, leasing office space, or offering services to clients—clear and enforceable agreements are essential. In Indonesia, contracts must meet specific legal standards to be valid, enforceable, and protective of your business interests.
In this guide, we outline the key elements that every business contract in Indonesia should include, common legal pitfalls, and how to ensure your agreements hold up in court.
Why Contracts Matter in Indonesia
Indonesia follows a civil law system, meaning contracts are primarily governed by written laws—especially the Indonesian Civil Code (KUHPerdata) and Commercial Code.
Having a properly drafted contract can:
-
Prevent misunderstandings and disputes
-
Protect your rights and financial interests
-
Clarify responsibilities and deliverables
-
Provide a legal basis for enforcement or compensation
What Makes a Contract Legally Binding?
Under Indonesian law, a contract is legally valid if it meets the following four essential elements (Pasal 1320 KUHPerdata):
-
Consent of the parties
-
Legal capacity to enter into a contract
-
A clear subject matter
-
A lawful cause (legal purpose)
If any of these is missing, the contract could be declared void or unenforceable.
Key Clauses Every Business Contract Should Include
To protect your business effectively, ensure your contracts cover the following components:
Parties’ Details
Clearly identify all parties involved with full legal names, addresses, and business IDs (e.g., NIB for companies).
Scope of Work / Services
Define exactly what each party is expected to do, deliver, or provide. Include timelines, methods, and standards of performance.
Payment Terms
Include:
Term & Termination
State the contract duration (fixed or ongoing), and conditions under which the agreement can be terminated early (e.g., breach, force majeure, mutual agreement).
Confidentiality Clause
Protect trade secrets and sensitive information shared during the business relationship.
Dispute Resolution
Specify how disputes will be resolved—via negotiation, mediation, arbitration, or litigation. You may also define the legal venue (e.g., Indonesian courts or BANI arbitration).
Governing Law/Jurisdiction
State that Indonesian law governs the contract, especially if one party is foreign. This ensures consistency in legal interpretation.
Force Majeure
Include a clause covering events beyond control (natural disasters, war, pandemic) that may excuse non-performance.
Signatures & Dates
Ensure all parties sign with proper authority and include dates for legal clarity.
Optional Clauses (Based on Context)
-
Non-compete or exclusivity clauses
-
Penalty clauses for non-performance
-
Automatic renewal terms
-
Warranty or guarantee provisions
-
Intellectual property rights
Common Mistakes to Avoid
Our legal team at AUFAR & Co specializes in contract drafting and review tailored to Indonesian law and your industry needs. We help businesses:
-
Draft bilingual (Indo–English) contracts
-
Review agreements for risk and enforceability
-
Represent clients in contract disputes
-
Align contracts with OSS licensing and compliance requirements
We don’t just write legal documents—we build your legal protection.
