Distributor’s Obligations for Indirect Distribution of Goods You Should Know

Distributor’s Obligations for Indirect Distribution of Goods You Should Know

“Goods distribution activities are divided into two types, namely direct and indirect. Know what the distributor’s obligations are for those who want to start a business in this field.”

In addition to capital, distributor business activities must be based on intentions and expand networks. If you are good at communicating and looking for connections, then the distributor’s business can be easier to do.

The art of good communication and negotiation will make it easy for distributors to deal with various parties, such as manufacturers, wholesalers / wholesalers, and retailers.

This is of course important for business actors who carry out indirect distribution activities. Distributors can also reap substantial profits if they expand their network with wholesalers or retailers.

It takes a serious commitment. If you are really interested in becoming a distributor, especially those whose activities are indirect distribution, you must be required to several obligations in accordance with statutory regulations.

First, we will discuss a little about distributors.

Distributor definition

Based on Government Regulation Number 29 of 2021 concerning the Implementation of the mercantile Sector (PP 29/2021), distributors are distribution business actors who acting on their own behalf and/or on the agreement of producers, suppliers, or importers based on agreements to carry out goods marketing activities.

So basically, there are two types of distributors, namely:

1. Distributors act on their own behalf.
2. Distributor upon appointment from producer/supplier/importer based on agreement.

Furthermore, regarding point 2, the quarter appointing the distributor is the producer/supplier/importer so that the goods can be traded at the retailer. Based on the Regulation of the Minister of Trade Number 21 of 2021 concerning Engagements for the Distribution of Goods by Distributors or Agents (Permendag 24/2021), the quarter who appoints this distributor is called the principal.

The principals themselves are divided into two types, namely (Permendag 24/2021):

1. Principal producers, namely individuals or business entities as producers who appoint distributors, sole distributors, agents, or sole agents to make sales of goods produced or controlled.
2. Principal suppliers, namely individuals or business entities appointed by the producer principal to appoint a distributor, sole distributor, agent, or sole agent in accordance with the authority granted by the producer principal.

Meanwhile, goods distribution activities are also divided into two types, including (PP 29/2021):

1. Indirect goods distribution activities, which include:
   • Distributors and their networks, including:
     • Distributors
     • Wholesale/grocery
     • Retailer
   • Agents and their networks, including:
     • Agent
     • Wholesale/grocery
     • Retailer
   • Franchise
2. Direct goods distribution activities, which include:
   • Single-level direct selling
   • Multi-level direct selling

In the discussion of this article, we will focus on distributors who carry out goods distribution activities indirectly.

In the following, the discussion regarding the obligations of distributors with indirect goods distribution activities will be further elaborated based on PP 29/2021.

Have a business license as a distributor

The definition of a Registration Certificate based on the Regulation of the Minister of Trade Number 24 of 2021 concerning Engagements for the Distribution of Goods by Distributors or Agents (Permendag 24/2021) is proof that the company has been registered as a distributor, sole distributor, sub distributor, agent, sole agent, or sub-agent of goods and/or services in accordance with the provisions of the legislation.

If this distributor is appointed by a domestic principal, then there are provisions as written on the website of the Online Single Submission (OSS) of the Investment Coordinating Board, including:

1. Agreement that has been legalized by a notary
2. For the extension of the Registration Certificate, if the distributor or agent does not make a new agreement with the principal, the old agreement must be accompanied by a confirmation letter from the principal regarding the extension of the agreement which has been legalized by a notary
3. If the agreement is made by the principal supplier, the principal supplier is obliged to have a letter of authority from the principal producer
4. If the agreement is only written in a foreign language, it must be translated into Indonesian by a sworn translator
5. Attach the Business Identification Number (NIB) and the principal’s business license
6. Have leaflets/brochures/catalogs from producer principals for the types of goods and/or services being agencies
7. Make a statement letter on a stamp that the goods to be distributed already have a permit or other registration letter from a technical agency that is still valid for certain types of goods in accordance with applicable regulations.

Own or control a place of business with a correct, permanent and clear address

Of course, the distributor must have a clear place of business, because the relationship is with government reporting and supervision through the Minister of Trade. So that it is not considered an illegal business and gain more trust in the distributor network.

Own or control a warehouse that has been registered with a correct, permanent, and clear address

Distributors usually have warehouses to store stock of goods supplied from manufacturers/suppliers/importers before being distributed to wholesalers or retailers. Therefore, distributors are required to have a Warehouse Registration Certificate (TDG).

Based on the website of the Investment Coordinating Board’s OSS Institution, the requirements for business actors to comply with the TDG provisions include:

1. Warehouse address and coordinates
2. Documentation view front, right side, left side, back, and in the Warehouse
3. TDG technical data form

In addition to registering the warehouse, distributors are also required to manage the warehouse. Warehouse management is carried out by administrative records, including (PP 29/2021):

1. Item owner
2. NIB of the owner of the goods
3. Type or group of goods
4. Number of items
5. Item entry date
6. Origin of goods
7. Date of goods out
8. Purpose of goods
9. The rest of the goods stored in the warehouse (stock)

Have an agreement with a producer/supplier/importer regarding the goods to be distributed

First, if the distribution of goods is indirectly carried out by distribution business actors (including distributors), then it can be through an engagement that can be proven by an agreement, appointment, and/or written proof of transaction (Article 34 PP 29/2021).

Second, if the distributor is appointed by a domestic producer (principal producer or principal supplier), then the parties must make an agreement legalized by a notary. This is regulated in Permendag 24/2021.

The parties’ agreement must at least contain the following, among others (Permendag 24/2021):

1. Full names and addresses of the parties to the agreement
2. Purpose and objectives of the agreement
3. Agency or distributorship status
4. Type of goods promised
5. Marketing area
6. Rights and obligations of each party
7. Authority
8. Term of agreement
9. How to terminate the agreement
10. How to settle disputes
11. The law used
12. Deadline for completion

Still confused about what obligations must be fulfilled to become a distributor? Please contact us, Prolegal! 

Author & Editor: Bidari Aufa Sinarizqi

Translator: Desak Nyoman Ratna Sari