What is an Agency relationship?
An agency relationship is a legal relationship that exists between one person (an agent) and another person (the principal), pursuant to which the law recognises that the agent has the power to create or change legal rights, duties or relationships between its principal and a third party.
What is an agent?
An agent is a person who facilitates contracts between a principal and a third party (usually, a customer). Typically, this is done by the agent introducing the third party to the principal, soliciting orders from the third party for the principal and, sometimes, by concluding contracts with the third party on behalf of the principal. The principal is typically a manufacturer, another supplier or an exporter.
Unlike a distributor, an agent does not buy goods on its own account from a principal and resell them to customers. As an agent does not contract with customers in its own right, usually, the agent has no liability to the customers.
As an agent does not sell goods on its own behalf but rather on behalf of a principal, an agent is normally paid by way of a commission on sales from the principal.
There are several different categories of agents (for example, a marketing agent, an introduction agent, a sales agent, a commercial agent, a statutory agent and a del credere agent), each of which have different rights and obligations.
What is an agency agreement?
An agency agreement is the document which sets out the terms and conditions of the arrangement between a principal (typically, a manufacturer, supplier or an exporter of goods) and an agent.
In a typical agency arrangement, an agent markets, solicits customers for and, sometimes, contracts with customers to sell goods on behalf of a principal. The principal may be a manufacturer or may itself be a supplier (for example, a distributor) reselling another supplier’s goods. The principal will then sell the goods to customers directly. The agent will usually be paid a commission on the principal’s sales to customers introduced by the agent. There may be limits as to what, how, when and where an agent may sell the goods. An agent may have exclusive, sole or non-exclusive rights to market, solicit customers for or contract with customers for the principal’s products on behalf of a principal in the relevant territory.
In some countries, certain categories of agent are protected from abusive business tactics by law and have rights which may be considered similar to those of an employee. By way of example, commercial agents are protected by the commercial agents regulations.
Agency agreements are typically used as a comparatively low risk means of expanding a business into new markets or territories.