Sales Agency Agreement

What is a sales agency agreement?

A sales agency agreement is an agreement under which a business or individual that owns a product or service (named the Principal) assigns another business or individual (named the Agent) to sell that product or service on their behalf, and sets out the terms and conditions under which the agent will sell the principal's products or services.

What is the difference between a sales agency agreement and a sales agreement?

The difference between a sales agency agreement and a sales agreement is the nature of the agency relationship between the parties and the retention of ownership of the products.

Under a sales agreement, the seller contracts with the buyer on the terms and conditions that will govern the transaction between the seller and the buyer. The seller deals with the buyer directly under a sales agreement, and the purchase transfers ownership of the goods to the buyer. The buyer is also not an agent of the seller, and the agreement does not create an agency relationship between the parties.

Under a sales agency agreement, the principal contracts with the agent on the basis that the agent will help the principal promote and sell their products. As such, ownership of the products remains with the principal even though the products are in the agent's possession.

Is it mandatory to have a sales agency agreement?

No, it is not legally mandatory to have a sales agency agreement. This is because agreements can be oral and don't need to be written. However, it is highly advisable to have a formal written sales agency agreement that sets out the terms and conditions and obligations of the parties. The sales agency agreement will also make it clear that the principal retains ownership of the products at all times and explain how the agent is to handle the products while they are in their possession.

What does 'Principal' mean?

The Principal refers to the party who owns the products and appoints the agent to sell them on their behalf. The Principal can be either an individual, a general partnership or a corporate entity (i.e. a company or LLP).

What does 'Agent' mean?

The Agent refers to the party who is appointed by the Principal to promote and sell the products. The Agent can either be an individual, a general partnership or a corporate entity (i.e. a company or LLP).

What does 'Commision' mean?

Commission refers to the earnings the Agent will receive from the sales of the product. The Commission could either be a set amount or a percentage of the price of products.

What must a sales agency agreement contain?

A sales agency agreement must contain the following clauses:

• The identity of the parties (the Principal and the Agent);
• The scope of agent's appointment;
• The duration of the agreement;
• The obligations and duties of the respective parties;
• The commission due to the agent;
• Exclusivity or non-exclusivity of the agreement;
• The agent's right of first refusal;
• Termination of the agreement;
• Liability and limitation of liability; and
• Governing law and jurisdiction.

 

Who can enter into a sales agency agreement?

The parties to a sales agency agreement should be two business/commercial entities. The structure of the business entity can be:

• A Sole Trader (i.e. an individual);
• A General Partnership;
• A Company; or
• A Limited Liability Partnership (LLP).

The parties to the sales agency agreement will be either the Principal or the Agent and either of these parties can be any of the business structures listed above. .

What can be the duration of a sales agency agreement?

The duration of a sales agency agreement is dependent on the intention of the parties to the agreement. The parties can agree on any duration they want, but they should take into consideration the practicality of the chosen duration.

What has to be done once a sales agency agreement is ready?

Once the agreement is ready, it should be signed by both parties, and they should each retain a copy. Where a party is a company or a LLP, the agreement should be signed by the representative who has the requisite authority to sign on behalf of the party.

The parties should also check and ensure that the agreement is executed in accordance with the business's constitution.

What documents should be attached to a sales agency agreement?

There are a number of documents that should be attached to a sales agency agreement, especially where they are referred to in the agreement or they contain details that are subjects of the agreement. These will be documents that have been made as appendices to the agreement instead of being included in the body of the agreement. These documents include:

• The list of products that the agent will be required to sell;
• The schedule of commission payment;
• Confidentiality Agreement; or
• Non-Compete and/or Non-Solicitation Agreement.

Is it necessary to have a witness for a sales agency agreement?

No, it is not necessary to have a witness for a sales agency agreement. However, it is open to the parties to choose whether they want the agreement to be executed as a deed, which will require signing in the presence of witnesses. This may be the case where the business's constitution (e.g. a company or a LLP) requires such agreements to be executed as a deed before they can be valid.

Which laws are applicable to a sales agency agreement?

The Commercial Agents Regulations 1993 SI 1993/3053

The Data Protection Act 2018

The Bribery Act 2010

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