Consignment Agreement Template for Indonesia
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What is a Consignment Agreement?
The Consignment Agreement is a crucial document for businesses operating in Indonesia's retail and distribution sectors. It is particularly useful when a product owner wants to place their goods with a retailer or dealer for sale without transferring ownership until the actual sale occurs. This arrangement, governed by Indonesian law including the Civil Code (KUHPerdata) and Commercial Code (KUHD), provides flexibility for both parties while maintaining clear legal protections. The agreement typically details inventory management, commission structures, reporting requirements, and risk allocation. It's commonly used in various sectors from retail to industrial goods, and must comply with Indonesian regulations regarding trade partnerships and commercial transactions. The document serves as a comprehensive framework for managing the consignment relationship, including handling of goods, sales reporting, financial settlements, and dispute resolution procedures.
About the Consignment Agreement
A consignment agreement is a commercial contract that allows you to place your goods with retailers or dealers for sale while retaining ownership until the actual sale occurs. Under Indonesian law, this arrangement is governed by the Civil Code (KUHPerdata) and Commercial Code (KUHD), providing a flexible business model that benefits both product owners and retailers while ensuring legal compliance with Indonesia's trade regulations.
When do you need this document?
You need a consignment agreement when placing products with retailers without immediate payment, expanding into new markets through local dealers, or when retailers want to offer products without upfront investment. This arrangement is particularly valuable for manufacturers entering Indonesia's retail market, fashion brands working with boutiques, electronics companies partnering with distributors, or artisans placing handcrafted goods in retail stores. The agreement is also essential when working with warehouse operators or logistics providers who handle your inventory, and when banks or insurance providers are involved in financing or protecting the consigned goods.
Key legal considerations
Your consignment agreement must clearly define ownership rights, ensuring goods remain your property until sold to end consumers. The contract should specify commission structures, payment terms, and reporting obligations to avoid disputes. Risk allocation clauses are crucial, determining who bears responsibility for damaged, lost, or stolen goods during the consignment period. You must include detailed inventory management procedures, covering how goods are received, stored, displayed, and tracked. The agreement should address return policies for unsold goods, termination procedures, and dispute resolution mechanisms. Additionally, ensure compliance with consumer protection requirements under Law No. 8 of 1999, especially if goods will be sold directly to consumers.
Legal requirements in Indonesia
Under Indonesian law, your consignment agreement must comply with the Civil Code's contract formation requirements, ensuring all essential elements are present for validity. The Commercial Code governs the commercial aspects, particularly trade relationships and business partnerships. Law No. 7 of 2014 on Trade regulates trading activities, requiring compliance with domestic trade provisions and distribution regulations. Government Regulation No. 44 of 1997 on Partnership applies when the consignment arrangement constitutes a business partnership, mandating specific cooperation frameworks. You must ensure the agreement includes proper identification of all parties, clear terms and conditions, and compliance with Indonesian language requirements for certain commercial contracts. The document should also address tax implications, as consignment arrangements may have specific VAT and income tax considerations under Indonesian tax law.
GOVERNING LAW
Applicable law
This Consignment Agreement is drafted to comply with Indonesia law. Key legislation includes:
Indonesian Commercial Code (KUHD): Governs commercial transactions and business relationships, including provisions specific to trade and commerce
Law No. 7 of 2014 on Trade: Regulates trading activities in Indonesia, including provisions on domestic trade and distribution of goods
Government Regulation No. 44 of 1997 on Partnership: Regulates business partnerships and cooperation between parties, which is relevant for consignment arrangements
Law No. 8 of 1999 on Consumer Protection: Ensures consumer rights and protection, which may be relevant if the consignment arrangement involves retail sales to consumers
Law No. 42 of 2009 on Value Added Tax: Governs the tax implications of consignment transactions and the responsibilities of consignor and consignee
Minister of Trade Regulation No. 11/M-DAG/PER/3/2006: Regulates provisions for agency and distributorship arrangements, which may be relevant for consignment relationships
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