Agency Vs Distribution Agreement

By Monarch Solicitors
Last updated on July 31, 2023

DIFFERENCE BETWEEN AGENCY & DISTRIBUTION AGREEMENTS

Solicitors, Manchester, London, UK Wide Lawyers, Agency & Distribution Agreements

In situations where a supplier does not have a direct access to the market where he wants to sell the product or it would not be the most feasible business decision to sell the product directly, businesses look for the other ways to get their product to the right market.

Alternatives to selling the product directly include setting up a joint venture, franchising agreements, or entering into a distribution or an agency agreement. The choice will depend upon various factors including the market size, the type of product and the desirable degree of control over the sales terms.

When deciding on the best way to sell or distribute your product, it is crucial to be aware of the legal and practical differences of the agency and distribution agreements.

Distribution Agreements (Supplier-Distributor)

The distribution agreements are often used for the lower-value products.

Distribution agreements define legal relationship between a distributor and a supplier. They are often used where the supplier has no presence in a certain market. The distributor purchases goods from the supplier and re-sells them to his customers.
There are 3 types of distribution agreements – exclusive, non-exclusive and sole. In case of an exclusive and sole distribution agreements the relationship between the parties is closer and more attention should be paid to the contract provisions.
In international distribution agreements laws of the distribution country should be taken into account when drafting an agreement.

Agency Agreements (Principal-Agent)

Agency agreements might be preferable for complex and expensive products.

Agency agreements differ from distribution agreements in a number of ways: an agent does not buy goods himself but enters into contracts (creates legal relationships) on behalf of the principal (the supplier). Acting as an intermediary; an agent receives commission on sales.
Agency agreements are more extensively regulated (for example, EU Regulations give an agent the right to receive compensation in case of termination of an agency agreement). Depending on the type of the agreement, agents may have an authority to enter into contracts on behalf of the principal or be just a representative without this authority.
Agency agreements may also be exclusive, non-exclusive, or sole. In case of an exclusive and sole agancy agreements the relationship between the parties is closer and more attention should be paid to the contract provisions.

In case of an exclusive and sole agency agreements the relationship between the parties is closer and more attention should be paid to the contract provisions.

Common Terms:

Common terms usually in an agency and distribution agreement concern the obligations of the parties, pricing or payment, restrictions on the type of goods for selling, restrictions on where the distributor or agent can sell his goods, restrictions on selling competing products, minimum purchase or sale requirements, intellectual property, termination and limitation of liability. All these provisions are extremely important for both parties, so an agreement clearly setting out the terms should be set in place.

It is advisable to seek professional legal advice when drawing up the agreement in order to clearly understand the terms of contract and appropriately protect your business form the possible liabilities that might arise.

Should you need a professionally drawn agency agreement or distribution agreement or are involved in an agency or distribution agreement dispute, contact our specialist commercial contracts solicitors or commercial litigation solicitors in Manchester on 0161 820 8888 and solicitors in London on 0208 889 8888 for immediate assistance.

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