14th October 2019
Appointing a commercial agent is one way of entering a market for your business and it can be a good way to test the water in a foreign country without the commitment of employing somebody.
In broad terms, an agency relationship is one which allows another person to do something on your behalf, or on behalf of your business. Clearly, passing on such authority will create a certain level of risk, particularly where the agent is far away and is acting outside of your control.
It is important to understand these risks and to take specialist advice on the contractual nature of the relationship, as Alec Brooks, Partner & Commercial Law Expert with Lamb Brooks explains.
Common Law of Agency
The term ‘agency’ is frequently used to cover a wide range of business relationships.
It is important that such a description is not taken at face value and the true nature of any such relationship should be reviewed carefully before binding agreements are reached. In the event of a dispute, the courts will place little emphasis on the labelling of an agreement but will look instead at the relationship between the parties and what that relationship implies.
Where an agency relationship is established, your business as the ‘principal’ will have a number of rights and duties of which you will need to be aware. There will also be a number of protections for the agent, such as those enshrined in the Commercial Agents Regulations 1993 which apply in Great Britain.
At the outset, it is fundamental that your solicitor assesses any agency relationship to determine whether these regulations apply.
In the event that the Commercial Agents Regulations are found to apply, various terms will be implied into your agreement, including provisions regulating the agent’s remuneration and your ability to terminate the relationship.
The regulations also place obligations on agents, including a requirement that they look after your best interests and act in good faith.
It is important to note that the Commercial Agents Regulations apply only to limited types of agent and focus mainly on self-employed intermediaries. The common law of agency applies to a much broader field and further advice will be required in anticipation of such a relationship being formed.
Clearly, this form of commercial relationship is a complex one and the terms of any agreement should be negotiated and documented by a solicitor in advance of the agent starting work on behalf of your business.
Suppose that a bespoke furniture manufacturer identifies a gap in the market for selling bespoke furniture made of a particular type of wood in France. Having no real experience of the market conditions in France, any marketing initiatives may well fall short of what is required to best promote their products.
In these circumstances, it would be sensible to seek the assistance of someone who does know the market in question and who could assist in marketing the products on the company’s behalf.
Upon forming this type of relationship, it would be important for the furniture manufacturer to determine what kind of agency relationship would best suit them i.e.
A sales agency – where the French agent is authorised to enter into sales contracts on behalf of the company; or;
A marketing agency – where the French agent is authorised only to find potential buyers and refer them to the furniture maker.
The key advantage of appointing an agent is their knowledge of the local target market and routes to market, such as key publications, major exhibitions and the supply chain, as well as local trading rules and regulations.
There are also downsides, including the risk of liability for damage caused by the agent’s actions. In most cases, the main disadvantage for business owners of appointing an agent is the loss of control. As an agent is not an employee, they may enjoy a level of freedom which you may be uncomfortable with. After all, this is your business and it is your reputation on the line.
There are several common problems which can arise when an agency relationship goes awry, and so it is important to consider these in advance.
Clearly, the potential risks and liabilities associated with instructing an agent can be significant. In these circumstances the advice of a specialist commercial lawyer is essential to ensure that the full extent of the risks arising are understood and where possible, limited.
As specialists in commercial law, we can provide detailed advice to ensure that you are fully aware of the advantages, disadvantages and risks of entering into an agency relationship. We can also provide specialist assistance in the negotiation of all forms of agency contract in order to ensure that your business is fully protected.
For advice on any of the above, please contact Alec Brooks on 01256 844888 or email email@example.com
Other articles you may be interested in reading:
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Selling your Limited Company – Considerations
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
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