Agency And Distribution Contracts

Agency and Distribution Contracts

Introduction

In this assignment the best sales-organization solution will be researched for the specific situation of the U.S. based company PackPartners. PackPartners developed a new packaging machine with a number of manufacturing patents registered to it and they would like to sell this product, called “The Products”, through a sales organization in Europe. The sales network should have certain requirements. To determine the best suited legal form as sales point these requirements needs to be accounted for. The three possible choices for legal forms are:

1. Agency

2. Commissionaire

3. Distributorship

The first part of this research will focus on the advantages and disadvantages of these three legal forms. The second part will focus on the best suited legal form in relationship with the specific requirements

Chapter 1: Advantages and disadvantages of the legal forms

This first chapter will focus on the three legal forms examined for this assignment. This will examined by determination of independence from the parent company. The first is then agency, the second commissionaire and third will be the distributorship. In the final paragraph the (dis)advantages relative to each other will be discussed.

1.1 The legal form, Agency

The exporter, the parent company in this case PackPartners uses an intermediary, an agent to market his product, “The Products”. The agent is an intermediary who acts as mediator between customer and the principal. When the parent company is issuing the agent with a Power of Attorney the agent is also allowed to enter into agreements in the name of the principal. The duration of the contract, an agency agreement, is not necessarily specified in the framework contract between principal and agent. The agent is working in the name of and on the account and the risk of the principal, against payment of a proportion of total sales. The parent company is the price-setter and sets all other conditions considering the product. The legal responsibility concerning the product is also with the principal, there is no contract between agent and customers. The laws about agency-agreements in the EU is protecting the agent as is mainly (semi-) mandatory. There must be no deviations, except on the advantage of the agent.

Only when specific in the agency agreement is noted that in a certain area or client base the agent has no exclusivity, the agent has exclusivity in a certain area or client base. As already described the agent is not liable for the customer, however under del credere conditions the agent is only being fully receiving compensation until the customer has paid its debt to the parent company.

The principal is obliged to show the agent a written statement showing the commission payable every month up to three months. After determination of the contract the agent has still compensation rights. The way this goodwill compensation is calculated depends on the jurisdiction of particular country. The German system, used in Germany and the Netherlands provide compensation for the intended benefit to the principal. The French system compensates the damage suffered by the agent.

Advantages:

- The agent understands the particular sales market. Instead of attempting to enter the market without any knowledge about the customers, the agent already has an extended client base.

- No major investments involved

- The agent is only being paid when he is making sales. Under del credere conditions the parent company can protect itself for bad debt.

- Because of the contractual relationship between parent company and the clients they get to know each other.

- The parent company has (in principal) not to bother laws and regulations in the foreign country. This includes: import and export, tax problems, industry/ intellectual property aspects.

- A big advantage is that non-competition law is not covering agencies.

Disadvantages:

- The parent company is dependent on the activity and knowledge of the agent

- The risk for potential (bad) debtors for the parent company are high related to the agent

- Compensation payments or payment of damages are a risk for the parent company.

- If the agent is a natural person in some countries in the EU is viewed as an employee. With all the same right as an employee.

1.2 The legal form, Commissionaire:

A commissionaire agreement is an agreement in which the principal orders the commissionaire to provide marketing and sales services for a determinate or an indeterminate period against payment of a commission, which will become due when purchase agreements regarding the contract products are entered into with customers. Such purchase agreements will be entered into in the name of the commissionaire, but on the account and for the risk of the principal (without the commissionaire being sub-ordinate to the principal). The principal has only a legal relationship with the commissionaire (framework agreement), and not with the customers. The purchase agreement is entered into between the commissionaire and the customer. The principal is economically (not legally) considered to be a party to the purchase agreement, because such agreement is concluded by the commissionaire for the account and risk of the principal. All advantages/disadvantages and profits/losses from such transactions are for the account of the principal. The customers in first instance will call the commissionaire to account in case of a breach of contract (f.i. the products are not in conformity with the contract). But the commissionaire can recoup the damages from the principal. The principal can decide to take the responsibility and liability by means of a written statement towards the customers. In case the commissionaire does not perform the purchase agreements or is declared bankrupt, the customers are protected. The customers have in such circumstances the right after notification in writing to execute their rights under the purchase agreement against the principal. If the customers exercise this right, the principal is bound