If you want to expand your business’s sales and marketing, appointing an agent or distributor can widen your reach considerably. Different terms and conditions apply to each along with different liabilities and advantages.
An agent will introduce or refer customers to you and your business in return for payment of a commission. When you part with the goods or services, the contract will be between you and the end customer. This means that you are liable under the terms of the contract and you can also be held liable for the agent’s representations while they are acting on your behalf.
Your agent can be given the power to negotiate with the consumer and to enter into a contract with them on behalf of the business, if you choose to allow this.
You can limit the agent’s geographical territory, for example, if you want to sell yourself in certain areas or engage another agent.
An agency agreement must comply with the Commercial Agents Regulations 1993, which include the right for an agent to have a written agreement in place and their right to receive commission.
They are also entitled to minimum notice periods in the event that you wish to terminate the contract. When the agreement is terminated, they have the right to receive a compensation or indemnity payment. It is important that this is clearly addressed in any agency agreement to ensure that your business will not be liable for an uncapped sum.
A distributor will buy your goods or services themselves and then sell them on to the end customer for a higher price, benefiting from the mark-up. The contract that you enter into will be with the distributor, not the end customer.
A distribution agreement could contain geographical limits on where the distributor can sell, minimum purchase requirements, restrictions on pricing, restrictions on the sale of a competitor’s product, details about termination of the agreement and provisions limiting liability.
Choosing between agency and distribution
By selling through an agent, you can usually retain greater control over the price of your product. You may also be better able to restrict with whom the agent deals. However, you should take into account the amount you will have to pay to the agent on termination of your agreement with them.
A distribution agreement allows you to pass on much of the risk to your distributor in respect of your product. You will also not be liable for their representations or actions and you do not have to pay a distributor on the termination of your agreement with them.
It is a good idea to talk your options through with an expert company and commercial solicitor before making any firm decisions. We would be happy to advise you, taking into account your business needs and commercial goals.
Hutchinson Thomas is the first law firm in Wales to be awarded the Law Society Mark of Excellence. The firm and many of our lawyers are recognised year on year in the Legal 500 publication as leading individuals in their field.
If you would like to discuss agency and distribution choices or have an agreement drawn up, call us on the following numbers or fill in our contact form.