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Thisarticle just provides an overview of the law in this area. You should talk to our Disputes Team for a complete understanding of how it may affect your particular circumstances.
Charles Abraham, Head of Disputeshighlights the circumstances in which a business may want to engage the services of an agent or a distributor.
What is an agent?
An agent is an intermediary appointed by a business to negotiate and possibly conclude contracts with customers on its behalf. An agent is paid commission on the sales they make, usually on a percentage basis.
What is a distributor?
A distributor is essentially an independent contractor. In a distributorship arrangement, a business sells its products to a distributor, who then sells the products on to their customer, adding a margin to cover its own costs and profit.
Why appoint an agent or distributor?
In appointing a selling agent or distributor, a business is effectively sub-contracting its selling function. The business may want to do this for a number of reasons, for example:
Always be clear about which arrangement is being used, as it is possible for a party to be both agent and distributor of different products under the same agreements (for example, a distributor in selling products but an agent for software relating to those products).
Why appoint an agent rather than a distributor?
There a number of situations where an agency arrangement may be preferable to a distributorship:
What are the risks when appointing an agent?
Businesses must always consider whether the Commercial Agents (Council Directive) Regulations 1993 apply to the arrangement. If they do apply, certain terms will automatically apply to the agency. In particular, the business may have to pay the agent compensation on termination or expiry of the agency.
Bribery Act 2010
Under the Bribery Act 2010, a business will be criminally liable for acts of bribery committed by its agents intending to obtain or retain business or a business advantage for the business.
A business should carry out background checks on the proposed transaction, jurisdiction and the agent's reputation.
The business should also consider putting in place adequate procedures to mitigate the risk, for example, by:
If you have any queries in relation to this post, please contact our Head of Disputes, Charles Abraham on 0113 201 0405.
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