Leading law firm Roythornes has announced that its Charity of The Year will be St Barnabas...
If your business is looking to appoint agents or distributors, it is important that the paperwork is right. It is also important when considering how best to market, sell or distribute your products to be aware of the difference, in legal and practical terms, between appointing an agent and a distributor.
Preparation of an agent agreement or distributor agreement helps focus on the practical and commercial issues needed to be considered when entering into such a relationship.
Roythornes' Corporate and Commercial team can advise your business when entering into agency and distribution agreements, whether the terms offered are right and fair and can help to ensure that you understand the legal framework and negotiate an agreement that is right for you.
What is a distributor?
A distributor purchases goods from a supplier or manufacturer and then sells them on to his customers, adding a margin to cover his own costs and profit (also called by some a distributorship agreement).
A distribution agreement is used when a supplier has no presence or representation in a particular market or country. It is important to have an agreement between the supplier and the distributor so that the terms between the parties are clear.
There is no real template for a distribution agreement, but they will normally cover:
- restrictions on where the distributor can do business
- restrictions on the type of goods the distributor can sell
- restrictions on selling competing products
- minimum purchase requirements on a distributor
- provisions regarding pricing
- provisions regarding termination and limitation of liability
A distribution agreement has similarities to an agency agreement. However, the main difference is that the distributor enters into the contract with the end-user (customer) on his own behalf and the manufacturer is not involved, except by way of manufacturer’s guarantee or warranty and product liability.
There are exclusive, non-exclusive and sole distribution agreements. There are often also competition issues to be considered with exclusive and sole distribution agreements. These need to be more tightly drawn than a non-exclusive agreement because both parties have more at stake and the relationship is closer to that of a franchise.
If you are looking at international distribution agreements, you may need to take into account the laws and regulations of the end user country when drafting your agreement to ensure that you are protected for sales made in that country.
What is an agent?
An agent is an intermediary involved in making a contract between his principal and the principal's customer.
You may wish to sell your product in a new sector by way of agents who have extensive knowledge of that sector.
The key attributes of an agency agreement are:
- an agent does not buy goods himself - he makes contracts on behalf of the supplier (his principal)
- he receives commission on sales
- these agreements are subject to European Regulations which give rights to an agent, such as the right to receive compensation on termination of an agency agreement
There are different forms of agency agreements and there are more regulations that apply to agents than distributors. An agent may have authority to negotiate and enter into contracts on the principal’s behalf or they may be a representative of the principal but without authority of this kind. Each type of agency may be exclusive or non-exclusive. If it relates to the sale and purchase of goods, it is likely that the agency will be subject to the Commercial Agents Regulations. These regulations provide for methods of compensation to the agent if the principal terminates the relationship.
In both agency agreements and distribution contracts, there will be terms setting out the duration of the arrangement, the obligations of the parties, payment arrangements, intellectual property rights and what happens when the agreement ends. There may also be provisions relating to reporting, accounts and records, training, marketing and so on.