Is an agency or distribution contract better for me?
Confusing the agency contract with the distribution contract is certainly common, even by the agents and distributors themselves.< /p>
However, it is convenient to know the differences between one figure and another, especially before signing the contract, since the legal consequences differ in one case and another . We have come across distributors who considered themselves agents, and vice versa.
It is common that these issues are not raised by the salesperson until the resolution of the contract and the end of the relationship between the agent/distributor and the employer are nearing. It is at that moment that the interested party wonders about his rights, and the possibility of requesting compensation for the work carried out and the economic repercussion on the business of the businessman.
As a preliminary matter, we inform you that the agency contract has its own regulation in the Agency contract law, which includes mandatory provisions to safeguard the rights of the agent commercial.
For its part, the distribution contract does not have a law that regulates it, which is why it is called an “atypical contract em>”. The fact that there is no law for the distribution contract does not mean that it is illegal. Its definition, regulation and consequences have been established by legal doctrine and court decisions (jurisprudence).
The agency contract involves an agent (can be a natural or legal person) and a businessman< /strong>. The agent is obligated before the businessman in a stable or continuous manner, for a determined or indefinite period, to promote commercial operations to improve the sales of the businessman’s product or service.
It acts under its own structure and independently. And does not assume the risk of commercial operations unless expressly agreed with the employer. The agent carries out this activity in exchange for a price, which can be configured as a fixed or variable amount (commission) or a mixture of both.
For more information on the characteristics of the agency contract, see our article 10 Fundamental aspects of the agency contract.
In the distribution contract one of the parties is called the distributor while the other is the supplier, both of whom may be individuals or legal entities. Under the distribution contract the distributor undertakes to acquire the goods from the supplier for resale in a specific geographical area.
This is a long-lasting and stable relationship, in which the distributor acts independently of the supplier, assuming the risk and venture of each operation. It is common for the contract to agree on exclusivity for the distributor regarding the geographical area in which it is allowed to work, or to establish a limited number of companies in the distribution network.
For more information on the characteristics of the distribution contract, see our article < strong>Distribution Agreement.
Differences between agency and distribution
The following are the most significant differences between the agency contract and the distribution contract:
- The agent looks for business formulas to promote sales of the entrepreneur’s product or service. The distributor however buys those products and resells them in the market.
- The agent, unless otherwise agreed, does not assume the risk of its operations. The distributor yes, since after having ordered a product he must sell it at his expense and risk. Li>
- The agent is paid based on the agreed remuneration, either commission or fixed payment. The distributor makes a profit by buying at a low price and later selling at a higher price.
- The entrepreneur has greater control over the marketed product when he has agreed with an agent, on the other hand, control is less when the agreement has been signed with a distributor due to the fact that he acquires the product and incorporates it into his assets with freedom to decide the destiny that grants them.
- Regarding compensation for termination of contract. Although the jurisprudence applies in both cases the compensation provided for in the Agency Contract Law, the suppression of compensation can be agreed in the distribution contract, which is not possible in the agency contract since the aforementioned Law prevents it.< /li>
- Non-competition agreement once the contract is finished. In the agency contract it can be agreed that the agent does not compete with the employer for a maximum period of 2 years. In the distribution contract, the maximum term is 1 year.
- In practice, the distributor usually finds financing facilities from the supplier. However, it is more difficult to find this benefit in agency relationships.
- Control over customers. In the agency contract, the employer bills the client, so he usually has more control over the clientele. In the distribution contract, it is the distributor who invoices, so the employer or supplier will foreseeably have less control and knowledge of the end customer.
Consequences of signing an agency contract
The agent has greater protection than the distributor since the Agency Contract Law establishes certain inalienable rights for the agent. As they cannot be waived (not available) they cannot be deleted by agreement with the employer, and in the event that the contract included a waiver of them, it would be null and therefore not would display effects.
Once the agency relationship is terminated, the agent will have the right to claim two types of compensation: compensation for clientele and compensation for damages.< /p>
For more information on the particularities of both types of compensation, see our article Compensation for ending the agency contract.
Summarizing, we point out that compensation for clientele consists of an amount that the businessman must pay to the agent for the clientele obtained that foreseeably will continue to provide a benefit to the businessman
The compensation for damages can be due to various reasons as we explained in the article cited above, the most common being compensation for contract termination when the agent had incurred expenses under the trust of an ongoing agency relationship; or for generating expenses by failing to comply with the notice period.
On the quantification of compensation for clientele in the agency contract contains more information in the article How to quantify compensation for clientele.
Consequences of signing a distribution contract
As we pointed out previously the courts grant the same compensation in the distribution contract as in the agency contract. However, in the distribution contract, the exclusion of compensation can be agreed upon by agreement between the parties. It is therefore important to have the timely advice of a lawyer specializing in Commercial Law before signing.
The courts have accepted compensation for damages when the notice period has not been respected, even when notice has not been agreed. Since the courts interpret that based on contractual good faith, the termination of the contract must be notified in advance when it is an indefinite agreement.
On the quantification of compensation for clients in the distribution contract, the article How to quantify compensation for clientele.