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Distribution & Agency Agreements
Using distributors or agents allows businesses to access local market knowledge and potential customers without establishing a new office or recruiting a new sales team in a new market. However, appointing a distributor or agent is not a risk-free option.
At JMW Solicitors, our team has wide experience of acting in relation to distribution and agency agreements, and can guide you through the process, providing you with the advice you need to make the right decisions and giving you the confidence to progress along this route.
How JMW Can Help
At JMW, our commercial law team has considerable expertise in this area of law, and will help your business manage all aspects of the distribution and agency agreement, including:
- Drafting and reviewing the relevant written agreements, in compliance with English law
- Preparing your business for the competition law implications of the deal and advising you on relevant exemptions
- Helping you decide whether to appoint a distributor or an agent, depending on your specific circumstances
Arranging these agreements can be a complex process, and falling foul of applicable regulations can be extremely damaging to your business. By getting in touch with JMW, we will be able to assist you through this procedure from start to finish.
Our commercial law solicitors have worked with businesses of all sizes and backgrounds on agency and distribution agreements, and will provide you with tailored advice that takes into account your specific business goals and priorities.
Mitigating Risks When Appointing an Agent or Distributor
In order to mitigate risks when appointing an agent or distributor, it is important to ensure you have a good understanding of their plans in the market and have the ability to exit an arrangement if it does not proceed as promised. Agents, in particular, can often have protection in law that safeguards the work they have completed on your behalf.
Equally, when acting as a distributor or agent, it will be vital to ensure:
- The manufacturer keeps its supply chain robust
- Your position in the market is protected
- Your appointment cannot be terminated arbitrarily
What are the main differences between agency and distribution deals?
Agency and distribution deals can both help businesses to strengthen their sales presence in new markets, but there are key differences between the two operating models:
- Agents are tasked with negotiating or concluding contracts on the behalf of their supplier, whereas distributors effectively act as a proxy for the supplier within the territory, with contracts agreed between the distributor and customer directly
- An agent receives commission on a percentage basis, whereas distributors will add their own margin to cover costs and profit at the point of sale
- The agent does not own the products they are selling, whereas distributors own the goods outright
What are the pros and cons of an agency agreement?
Agency agreements tend to be preferable for companies that wish to maintain greater control over their selling activities. Benefits include:
- Suppliers will be able to control decisions made about the terms of each sale, including pricing and messaging
- The supplier will pay a smaller margin to the agent
- Companies that depend on maintaining a closer relationship with the customer for after-sales services will be able to do so
- Businesses will typically encounter fewer competition law issues
However, potential downsides include:
- Under the EU Commercial Agents (Council Directive) Regulations 1993, agents may have the right to a lump sum payment, even in certain circumstances if they have committed a breach of contract
- The supplier will take on all of the financial risk if a product sells poorly
- Suppliers may be directly liable for paying taxes in territories where they have an agency agreement in place
What are the pros and cons of a distribution agreement?
Distribution agreements are better for companies that are more willing to delegate greater responsibility for their sales to an external partner with knowledge of the market. Advantages include:
- Suppliers are able to pass on a large degree of risk associated with their goods to the distributor, which in turn gives the distributor a more direct incentive to sell the stock
- Suppliers will avoid liabilities incurred by the distributor in most cases
- Suppliers will not need to establish a dedicated office within the territory in question, reducing their administrative costs and tax liabilities
- The distributor will take responsibility for monitoring relationships with various customers, with the supplier dealing exclusively with the distributor
- If the distribution agreement is terminated, no compensation or indemnity will be payable
However, there are also potential risks, including:
- The supplier has much less control over the distributor’s activities than would be the case with an agent
- Competition law problems are more likely to arise