Agency & Distribution Agreements
Many successful businesses employ their own sales team to win new business and manage the critical relationships with their customers. However, in some circumstances, a business may want to exploit the contacts, knowledge and resources of others to help them expand the market for their products. In those circumstances appointing an agent or distributor can be key to opening up new markets or exploiting a new opportunity.
Agency is ideal for the situation where direct contact between a manufacturer or supplier (the principal) and customer is important. It allows the principal to retain control over the agent’s marketing operations and its resale pricing policy and on an ongoing basis the commission to which an agent is entitled will probably be less than the margin a distributor will earn. Against that the principal will remain liable to the customer and, importantly, where the Commercial Agents Directive applies, an agent will have the right to compensation or an indemnity when the agency agreement is terminated.
Where that direct contact with the customer is not so important there are many advantages to appointing a distributor. In selling to a distributor, the supplier may be able to pass on a large degree of the risk and in the UK, no compensation or indemnity is payable to a distributor on termination of the distribution agreement. On the other hand a supplier has less control over the activities of a distributor than it would over its own agent and a distribution agreement is far more likely to be at risk from competition law problems than an agency agreement.
KBL corporate solicitors can help manage the relationship between principals and agents, suppliers and distributors so that both parties understand the inherent legal and commercial risks from the outset so as to ensure that common pitfalls are avoided.