Agency and Distribution Agreements: Which is Right for You?

Agency and distribution agreements are widely used in the UK to structure commercial relationships. These agreements are used when a company seeks to sell its products or services through third parties. Both agreements work to allow businesses to expand their market presence without direct involvement in sales operations. However, these agreements function in distinct ways.

When deciding between agency and distribution agreements, businesses must consider a variety of factors. Expert Commercial Law offers access to a specialised panel of experienced solicitors. They can provide guidance on both agency and distribution agreements. For further details and legal advice from our legal professionals, please contact us today.

Agency agreements in the UK

An agency agreement is a written agreement where one party, the agent, is authorised to act on behalf of another, the principal. The agent can then negotiate and sometimes conclude sales with third parties. In the UK, agency arrangements are governed by the Commercial Agents (Council Directive) Regulations 1993. This provides specific protections to agents, particularly in cases of termination of the agency relationship.

Key aspects of UK agency agreements include:

• Regulation: Commercial agents are subject to specific legal protections, including rights to compensation or indemnity upon termination of the agency agreement.
• Commission: Agents are paid a commission. This is usually a percentage of the sales they generate.
• Authority: The agent acts under the control and instructions of the principal.
• Liability: The agent does not own the goods and typically does not bear liability for defective goods or services.
• Termination Rights: Agents have certain protections against unfair termination, making the terms of the agreement particularly important.

Distribution agreements in the UK

A distribution agreement is a contract where a distributor purchases goods from a supplier or manufacturer to resell them in a specified market. The distributor will operate alone. They will take ownership of the goods and assume the risk of sales on behalf of the principal. Unlike agents, distributors are not governed by specific UK legislation. However, competition law and general contract principles apply to all types of distribution agreements.

Key aspects of UK distribution agreements include:

• Ownership: Distributors purchase and own the goods, taking responsibility for marketing and sales.
• Risk and reward: Distributors bear the risk of unsold goods but also retain the profits from sales. This is different to agents who earn commissions.
• Autonomy: Distributors generally have greater independence in setting prices, handling marketing, and managing customer relationships. However, suppliers may impose certain conditions.
• Competition law: UK competition law affects the terms of distribution agreements, particularly regarding exclusivity and resale price maintenance.

What sort of elements should the agreements cover?

The agreement should clarify whether the relationship between the parties is exclusive or non-exclusive. It should outline the specific terms, as well as the conditions and timing for termination by either party. Typically, the agent or distributor will be restricted to selling or negotiating contracts for certain goods or services within a designated territory.

The business may need to retain the right to sell those goods or services in other regions. As mentioned earlier, the scope of authority for each party should be clearly defined. The business will usually require the agent or distributor to fulfill reporting obligations.

Additionally, clauses may be necessary to prevent the agent or distributor from engaging in activities that could compete with or harm the business’s reputation. The agreement must also specify the payment owed by the business to the agent or distributor.

Why would a business need an agent or a distributor?

Businesses often rely on agents and distributors to sell their products or services. This is done because they have specialised knowledge of a specific market, product, or region.

This is also done if they already have an established presence in a particular location. Appointing an agent or distributor can also help reduce a business’s risks and liabilities. This is often crucial when entering a new market or territory.

Choosing between agency and distribution agreements

Selling through an agent typically allows you to maintain greater control over the pricing of your product. It also allows you to place restrictions on who the agent can deal with. However, it is important to consider the potential costs involved in compensating the agent when the agreement ends.

In contrast, a distribution agreement shifts much of the product-related risk to the distributor. You are not responsible for their actions or representations. There is also no obligation to compensate the distributor upon termination of the agreement.

It is advisable to discuss your options with an expert in commercial law before deciding which agreement to make. At Expert Commercial Law, our panel of solicitors can provide advice tailored to your business needs and commercial objectives.

Intellectual property considerations in agency and distribution agreements

Intellectual property (IP) considerations are critical in agency and distribution agreements because they help protect the business’s valuable assets. This includes trademarks, patents, copyrights, and trade secrets.

The agreement should clearly state that the business retains ownership of its intellectual property. The contract should outline how the agent or distributor is allowed to use the IP during the course of their relationship. For instance, it may specify that the agent or distributor can use the trademarks solely for marketing or selling the business’s products and not for any other purposes.

Often, the agent or distributor will require a license to use the business’s IP to promote and sell the products or services. The agreement should grant a limited, non-exclusive, or exclusive license (depending on the arrangement). It should also define the scope of that license. It should specify whether the license extends to a particular territory. It should also state how long it lasts, and under what conditions it may be revoked.

A major concern is ensuring that the agent or distributor uses the business’s trademarks and branding consistently. This is because branding should always be used in a way that enhances the brand’s reputation. The agreement should require the agent or distributor to follow specific branding guidelines. It should also prohibit the unlawful alteration or misuse of logos, trademarks, or other branding elements.

How can a solicitor assist with agency and distribution agreements?

Solicitors can provide advice on the advantages and difficulties of choosing an agency versus a distribution agreement. They will advise clients based on the business’s goals. They help identify potential legal risks before you enter into a contract. They can advise on ways to minimise these risks through contract clauses or insurance provisions.

A solicitor can draft clear, comprehensive agreements that outline the roles, responsibilities, and obligations of both parties. This ensures that important terms such as commission structures and contract duration are clear. They can also assist in negotiating favourable terms. They will ensure that their client’s interests are protected at all times.

For agency agreements, solicitors ensure compliance with relevant regulations. This includes the Commercial Agents Regulations 1993, which provide certain rights and protections to agents, including compensation upon termination.

For distribution agreements, they ensure compliance with competition law, including restrictions on exclusivity, territorial limitations, and pricing. This is to avoid breaching laws related to anti-competitive practices.

A solicitor plays a crucial role in ensuring that agency and distribution agreements are robust. They will ensure that the agreement is compliant with legal standards. They will also ensure the agreement is structured to minimise risk while protecting the client’s commercial interests. A solicitor can provide ongoing advice as the business relationship evolves, helping to update the agreement if circumstances change.

How can Expert Commercial Law assist?

Our panel of solicitors have many years of experience in dealing with agency and distribution agreements. Our panel has a deep understanding of business law. They can provide tailored and professional advice to each of our clients.

The solicitors on our panel can assist with all business matters, including agency and distribution agreements. They can represent your business in order to achieve the best possible outcome and protect your business interests.

If you would like to find out more about how we can assist your business, please get in touch today.

Please note, we are not a firm of solicitors. We act as an introducer and will pass on your case to a solicitor on our panel. Panel firms pay fees which contribute to the running of our website and marketing. We will never charge you for passing on your case.

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