Getting Product to Market - Agents

The theme of this series of articles is to explore strategies that a business can use to expand their customer base or presence of product in the market. Using the term “product” to mean goods and services. Part 1 will cover Agents. Part 2 will cover Distributors and Part 3 Franchising. These are all ways of enhancing  the selling functions of the business.

Many businesses are familiar with using agents. Agents fit alongside a business working to promote or sell for them usually in return for a commission. They are not employed but are standalone set ups using their contacts and experience to sell products on behalf of another.

Prior to 1993 there was very little regulation of agency agreements. Parties were free to contract based on common law principles to include their respective right and duties and developed through the courts. The Commercial Agents Regulations go 1993 regulated the contracts for certain types of agents known as commercial agents. When advising a client it is important to determine whether the Regulations apply before drafting the contract as certain terms must be included. Most importantly commercial agents are entitled to compensation or a lump sum on termination of the arrangement which needs legal input to determine the correct approach.

There are three parties to this arrangement, being the customer, the principle and the agent, all with different contractual rights and obligations.

An agent has the power to trade, create, change or terminate the legal relations of another (known as the principle). The agent can also fall within two categories, the first type having the authority to conclude sales of the Product on behalf of its principle, and the second type as an introducer/ finding arrangement to find customers, but with no authority to conclude contracts.

Agents may be appointed for a territory or a country with varying degrees of power over what they do. Some have exclusivity rights, some are sole agents and some non-exclusive. Sometimes the principle is disclosed so the customer is aware that the product is coming from the principle and sometimes not disclosed  so that the customer thinks that they are contracting to buy the product from the agent which can make the agent more liable to the customer if things go wrong.

Most agency arrangement are contractual. If acting for a principle, key considerations within the contract are to control the agent’s activities in a way that means the principle can honour promises made to customers and to protect brand, reputation, knowhow and confidential information.  An agent will be concerned with receiving their commission when due, and that once a principle concludes a contract with a customer that they can fall away and escape liability issues should things go wrong. A properly written contract is key to this.

Choosing whether to use an agent over other types of arrangements is often a commercial decision and an evaluation of risk over benefit and cost over potential growth. Location and nature of the product are also considerations.

At SME we can help you understand the legal implications of the various arrangements to assist you in that process.   For further information on this or any other commercial law matter, please contact   Justine Lowe at SME Solicitors on or 01905 723561.

Added: 23 Mar 2022 10:19

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