Having an agent to market your goods in a particular region or country, can be a good way to test the market, without incurring the costs of expansion yourself, by establishing a distribution or sales centre in the new region, or employing new staff.  Being the principal in an agency relationship also means that you still have an element of control over sales contracts obtained for you by your agent – you are not bound to supply any of your agent’s supply of new customers.

However, if the new region you want to explore is a foreign country, you may also need to consider whether any mandatory laws of that foreign country will apply.  Within the EU – and that still includes the UK - for sales of goods, the Commercial Agents Directive (Directive) already imposes certain minimum standards of protection for self-employed agents, and some mandatory rules on compensation for termination of an agent’s services.  In some countries, similar principles are applied to agency arrangements relating to supply of services, as apply under the Directive to the supply of goods.

The mandatory rules in the Directive, to compensate an agent for termination, give the Principal the ability to choose between two different ways of calculating the compensation that will be due.  Arguably, one of these ways of calculating the compensation will be far more favourable to the Principal, but it has to be specified – if the agency agreement does not specifically set out which method will apply, the default method will be likely to cost the Principal more.

The terms of an agency agreement will set out the parameters of the relationship between Principal and Agent.  It is equally important for both parties, that it is clear from the outset, what the Agent’s territory will be, whether the Agent has any kind of exclusivity, and exactly what the Agent will be expected to do, before any commission becomes payable.

If you would like any further information about agency or agency agreements, please contact Suzanna Patalong on 0121 698 2200 or s.patalong@sydneymitchell.co.uk.

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