A supplier, when considering the distribution of goods, will need to decide whether to appoint an agent or a distributor. There are many factors that need to be considered when making this decision.
An agent is an intermediary involved in making a contract between the principal (supplier) and the principal’s customer. Where goods are being sold, there are two kinds of agent; a sales agent and a marketing agent.
A sales agent has the authority to enter into agreements with the customer on the supplier’s behalf. The agent can therefore bind the supplier to a contractual agreement.
A marketing agent, unlike a sales agent, does not have authority to bind the supplier, but can market and promote the supplier’s product to prospective customers. When a customer wishes to make a purchase it is the supplier who completes the contract.
Unlike agents, distributors purchase products from the supplier and then resell them to customers in a particular territory on their own account, thereby taking control of pricing and the ensuing profit.
An agency may be described as exclusive, non-exclusive or sole. These terms need to be determined between the parties in their agreement, but generally the following definitions apply:
Exclusive rights prevent the supplier from actively seeking sales in the agents’ territory and from appointing other agents or distributors in the territory.
Sole rights prevent the supplier from appointing other agents/distributors/resellers in the territory, but will not prevent the supplier themselves from seeking sales there.
Non-exclusive rights leave the supplier free to appoint further agents and resellers and to also actively seek direct sales in the territory.
As with agencies, there are different kinds of distribution agreement.
Exclusive rights prevent the supplier actively seeking sale in the distributors’ territory and from appointing other distributors in the territory.
Sole rights prevent the supplier from appointing another distributor in the territory, but will not prevent the supplier seeking sales there.
Non-exclusive rights allow the supplier to appoint further distributors and to actively seek direct sales in the territory.
Selective distributorship is where a supplier will only appoint additional distributors if they meet certain criteria. Please note that this kind of agreement can cause competition law problems, and so advice should be sought prior to pursuing this option.
If you are considering the supply of products into the UK and would like further advice on the differences between distributorship and agency then please contact : contact@ouryclark.com
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Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above or require any assistance with drafting or reviewing a contract.
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