When to use an Agency or a Distribution Agreement

agency

When deciding whether you should use an Agency or a Distribution Agreement – the main question a business owner should ask is whether the person or Company you are appointing will be acting as an Agent or a Distributor.

An Agent relationship comes into existence where the Agent obtains permission from the Supplier to market, present and represent a product or service to a third party (the Customer), or to create a legal relationship between the Supplier and Customer.

On the other hand, under a distribution arrangement, the Supplier or Manufacturer sells products or goods directly to the Distributor, who then sells the products on to its customers, normally adding a margin to cover its own costs and make a profit.

An Agent basically markets the products of goods of your business, whereas a Distributor expands your current distribution network.

Both Agreements are, from a Competition law perspective, known as Vertical Agreements. When entering into these types of Agreements the key considerations to be factored in include:

  • Normal commercial considerations between the Contracting Parties and
  • Competition law in terms of the restrictions placed on one of the Parties by the Agreement.

In legal terms, an Agent is acting on behalf of your Company whereas a Distributor is likely to act on its own behalf but will still have a contractual relationship with your Company to purchase certain products or goods and then market same directly subject to any restraints you may seek to impose.

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