Agency Agreements in General

The purpose of sales agency and distribution agreements [Distribution Agreements] is to discover new, effective distribution channels for a product. Juridically, however, the agreements differ. Whereas a reseller acts in its own name, an agent acts on behalf of and in the name of the principal. It is appropriate to enter into an agency agreement when the objective is to exercise tighter control over distribution of the product.

A commercial representative, i.e. an agent, acts on behalf of and in the name of the principal, and either forwards orders to the principal, or concludes transactions which become binding on the principal. The final transaction is concluded between the customer and the principal, i.e. the agent does not become a party to the contract. The typical main task of an agent is to bring together the parties of a transaction.

Agency agreements are regulated by the Act on Commercial Representatives and Salesmen. The Act includes a number of mandatory provisions, which the parties cannot deviate from. According to the Act, a commercial representative is an entrepreneur, who has entered into an agreement to continuously promote the sale or purchase of goods on behalf of the principal by obtaining offers for the principal or by concluding sales or purchase contracts in the name of the principal. Salesmen on the other hand, are employees, who have entered into an agreement with the employee to promote the sale of products by visiting clients without carrying the products to be sold with them. Indirect representation, where the agent concludes contracts in its own name, falls outside the scope of the Act, as such representatives are from a legal perspective regarded as resellers.

Differentiating between resellers and commercial agents is of legal importance, as the Act imposes specific obligations on the principal as regards commercial agents. Also, certain provisions of the Act are mandatory, and cannot be deviated from in an agency agreement. See further regarding mandatory provisions in [Mandatory Provisions of the Agency Act].

When drafting an agency agreement, it is worth paying particular attention to the agent’s authority, responsibilities, rights and duty of confidentiality.