Depending upon the nature of your business an agency agreement may be more suitable to market your goods or services. Alternatively, a distribution agreement may be more beneficial, or taking on an employee or consultant.
An employee can be used to market and sell your products, can be given training, control over working times and will owe certain duties to you as an employee. On the other hand, with an employee comes further tax consequences and the necessity to pay a continual salary, in contrast to that of an agent that operates on a commission basis.
As agency relationships are less subject to competition law provisions, agency agreements can allow your business to have more control over the agent's ability to sell the products and determine the conditions of these sales. By contrast, with a distribution arrangement, once the goods have been sold to a distributor the goods become the distributor's to deal with - that freedom can be limited in line with competition law rules. An agency relationship may also be an appropriate means of marketing goods where such goods are tailor-made or high value and close contact with the ultimate customer has to be maintained.
Another factor is the size and resources of the parties involved. Can your business afford to supervise an agent, market the goods itself and hold the stock, or would it be more suitable to sell the goods to a distributor who will then be responsible itself for the stock and marketing the product?
Another final factor is the issue of liability for the goods and services. If your business is concerned about potential liability to the end customer then a distribution agreement where the customer contracts with the distributor may be more suitable. Your business may also be responsible for compensation to an agent upon termination of the agreement which can be very costly for a business. These rules are applicable even where there is no written agreement.
Our Business Law team can provide advice on the right business arrangement for your business.
04 Feb 2019
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