A business that wants to put its goods or services on the market through the appointment of a third party has a range of options. We can advise on the models available, and the practical issues to consider for a business looking to appoint, or be appointed as, an agent, distributor or reseller. Our commercial specialists provide a full range of services regarding agency, distribution and reseller arrangements, from advising experienced organisations participating in complex international arrangements, providing guidance to businesses considering entering into agency or distribution arrangements for the first time.
You can learn more about our approach to advising on the main models of agency, distribution and reselling, or read our introductory guide to the different routes to market on this page.
By working closely with our clients, we can ensure we meet their expectations, business operations and costs, whilst providing clear, concise and constructive advice and assistance. We are easy to deal with, clear in our advice and understand that a common-sense approach is often required.
Routes to market
Our commercial specialists advise on the issues that arise when a supplier puts its goods or services on the market via an agent, distributor or reseller. This note considers the different routes to market available to a supplier.
A business that wants to supply goods or services into a new territory or through a new channel may decide to appoint a third party to participate in the sale of those products. This route is appealing where the supplier does not want to establish a ‘bricks and mortar’ or online trading presence in the new territory, or because the third party can offer the possibility of sales growth through its profile, experience and connections in the territory. The two main options are:
- appointing a distributor, who will trade with customers in the territory on its own account; or
- appointing an agent, who will have limited rights to promote sales of the products while acting on behalf of the supplier.
We discuss some of the relative advantages and disadvantages of these models in the FAQs. Each of the main models has a range of variants, and we also discuss some of the terminology commonly used to describe these variants in the FAQs.
The laws that apply to distribution and agency are complex, particularly where cross-border trade is involved. Before entering into such an arrangement, or making significant changes to existing arrangements, legal advice should be taken. You can view more information on the services we provide in respect of international trade here.
As well as considering general legal principles of international trade, the local laws of the country where the activity takes place will affect the parties’ respective obligations, particularly in respect of product liability, consumer rights and data protection. Follow the link for more information on our data protection services.
Distribution and agency arrangements can give rise to competition law issues, and a further issue of particular importance to agency appointments is the application of the Commercial Agents Regulations (and the EU Directive on which those Regulations are based), and the rights that these Regulations give to agents.
If you want to discuss any legal considerations arising from distribution or agency arrangements, our specialists would be happy to answer your questions. We have also set out introductory comments in response to some commonly asked questions below.
Appointing an agent to represent your goods and services in a new territory can be an attractive route to developing a new market. We can advise on the opportunities (and the pitfalls to avoid) for principals and agents entering into agency arrangements.
We advise principals seeking to establish new agency arrangements, or to expand existing arrangements into new territories, and provide suitable documentation to reflect the details of the model envisaged. We support our clients in negotiating and concluding distribution agreements and can guide them through the process of coordinating local law advice on the contracts performed in foreign legal jurisdictions where required.
Clients often seek our advice on the Commercial Agents Regulations, and how these affect their position as principal – we provide guidance on these issues and support our clients in creating documents that reflect the requirements of the Regulations and mitigate the exposure of the client as principal.
We also commonly advise on issues that arise during the life of the contract and can support contract interpretation, and the preparation of variations and extensions to existing agency agreements.
Agent Distributor Agreement
We advise agents at all stages of their agency. We are frequently instructed by agents looking to enter into new agency agreements and require assistance with drafting an agency contract, or, reviewing and understanding the terms of an agency agreement proposed to them by the principal. We support agents in negotiating and concluding agency agreements and variations to existing agreements.
Our Dispute Resolution team regularly acts for agents who have had their agencies terminated and are seeking an indemnity or compensation payment under the Commercial Agents Regulations. Often difficulties arise during an agency and we are instructed to advise on issues relating to territory or accounts being brought “in-house”. You can read more about the services we provide in respect of disputes arising from agency arrangements.
Our Agency Experience
Recent examples of our work in this area include:
- advising on the preparation of heads of terms for the implementation of an arrangement whereby our client would resell consultancy services provided by a third-party supplier in combination with our client’s existing services;
- preparing a marketing agency agreement, under which our client permits its agent to introduce potential customers for products which the client also makes available direct to customers through its online channel;
- acting for a variety of principals on the preparation and implementation of their agency agreements to appoint agents on a non-exclusive basis for the sale of goods within the UK.
Appointing a distributor or reseller to resell your goods and services in a new territory can be an attractive route to developing a new market. We can advise on the opportunities (and the pitfalls to avoid) for suppliers, distributors and resellers entering into distribution arrangements. As specialists in distribution arrangements, we have significant experience advising suppliers, distributors, and resellers of goods and services.
We advise suppliers seeking to establish new distribution arrangements, or, aiming to expand existing arrangements into new territories or new channels, and can provide suitable model documentation adapted to the details of the model envisaged.
Distribution agreements will commonly refer to the supplier’s standard terms of sale – for more about standard terms, please visit our Terms and Conditions section.
We also commonly advise on issues that arise during the life of the contract and can support contract interpretation, and the preparation of variations and extensions to existing distribution agreements.
Distribution arrangements must be structured to achieve compliance with the competition law regime. We frequently advise on the requirements of competition law as they apply to our clients’ specific circumstances and their intended commercial models, and we draft agreements with a view to compliance with these requirements (including those set out in the Vertical Agreements Block Exemption Regulations) – for more on this topic, please see our introduction to Competition Law and Commercial Agreements.
Distributors and Resellers
The terms ‘distributor’ and ‘reseller’ are often used interchangeably – a distributor is someone appointed to resell the supplier’s products, and can be referred to as a reseller. In some cases, though, a supplier may distinguish between ‘distributors’ – which it appoints in respect of a specified territory and allows to appoint a further tier of ‘resellers’ in that relevant territory – and ‘resellers’, which will have direct contact with customers.
What is most important, for both the supplier and the distributor/reseller, is to ensure that the terms of the distribution agreement reflect the intended rights and obligations of the parties, regardless of the choice of the terminology used, and we are experienced in creating documents that are adapted to the client’s requirements.
The concept of the ‘Value Added Reseller’ is specifically used in the IT sector to refer to a business that combines software provided by a third party with its own hardware, software and/or services to provide a ‘value added’ combination for the benefit of its customers. If you are interested in the specific issues relevant to reselling in the IT sector, you can read more about our Technology sector and the services we provide.
Our Distribution Agreements Experience
Recent examples of our work in this area include:
- drafting an exclusive supply agreement for a leading international supplier of healthcare products;
- drafting an agreement governing the international supply of our client’s mobile phone accessories;
- advising a manufacturer specialising in roofing products and materials with its supply agency and distribution network. We prepare a variety of agreements to be entered into by our client to appoint agents, distributors and marketing agents in relation to the sale and distribution of its products throughout various territories.
- advising a manufacturer of heating and cabling products on its supply, distribution and agency agreements. Working closing with our client we assisted in the client’s expansion into markets internationally. We prepared agency agreements and distribution agreements as a mix of these arraignments were used to distribute the client’s products throughout a global market.
- advising a start-up software company with its software services to be integrated with other client products and services (on a value-added reseller basis). We prepared a precedent VAR Reseller Agreement which included detailed terms to be implemented by the VAR within its contracts with its customers, to protect our client's software service offering and managing service level expectations). The agreement needed to be flexible as the nature of the products and services that our client’s software services can be integrated with are broad-ranging.
What are the main differences between the distribution model and the agency model?
There is scope for a great deal of variety within these two models, but we provide a summary of the main differences between the models as commonly implemented below:
Distribution: A distributor buys products from the supplier, and sells those products to customers in the distributor’s name. This means that, for a distribution arrangement relating to goods, two transfers of legal ownership occur – first from the supplier to the distributor, then from the distributor to their customer.
A distributor sets its selling prices and makes a profit by selling the products at a mark-up to the price it buys them from the supplier.
These aspects of the arrangement are detailed in the Distribution Agreement between the parties, which will also specify commercial details such as the term and territory of the arrangements, and whether the distributor is appointed on an exclusive, sole or non-exclusive basis (see below), and any minimum sales targets, operational arrangements in respect of matters such as forecasting, accounting and reporting, and delivery of goods, as well as setting out the legal terms of the arrangement.
Agency: An agent, by contrast, acts on behalf of the supplier (referred to as the ‘principal’ in this context) in the promotion of the principal’s products, and does not supply the products to customers in its own name. This means that, for an agency arrangement relating to goods, there will be only one actual transfer of legal ownership – direct from the principal to the customer – even if the agent in practice holds stock for onward supply to customers.
The agent generally earns a commission from the principal, often calculated as a percentage of the value of the products which the principal sells through the efforts of the agent. These aspects of the arrangement should be set out in the Agency Agreement between the parties, which will also cover other commercial, operational and legal aspects of the arrangement.
What are the advantages and disadvantages of the distribution model and the agency model?
From the perspective of the supplier choosing between the models, the distribution model can be viewed as achieving a greater transfer of risk from supplier to distributor (since it is the distributor that generally bears the financial risk of the products failing to sell, and the distributor also has direct contractual obligations to its customers). This model also generally reduces the administrative burden for the supplier since the distributor acts as a single point of contact for the supplier in the territory.
Appointing an agent tends to preserve greater control for the supplier (the supplier, as principal, can set pricing, determine how the products are marketed and sold etc), but at a cost in terms of ongoing involvement in respect of the downstream arrangements, since the supplier itself, as principal, will have direct contractual relationships with the customers that buy the products through the agent. The supplier as principal will need to be aware of local law tax and compliance requirements affecting businesses trading in the relevant territory through an agent.
Significantly, the Commercial Agents Regulations (and the EU Directive on which those Regulations are based) apply to agency appointments in respect of goods but do not generally apply to distribution agreements. The objective of the Regulations is, in broad terms, to protect the interests of agents, so the supplier may wish to avoid their application by using the distribution model. However, it should be noted that some countries extend similar rights and protections given to commercial agents under the Commercial Agents Regulations to distributors operating within their borders.
What terminology is used when talking about the different variants of the main models?
Many of the terms commonly used in relation to agency and distribution arrangements are given different meanings by different businesses or in different contexts, so it is always important to check that the contract you are using reflects the parties’ actual intention regarding the arrangements. Commonly used terms are:
Reseller – this is generally used to refer to a business that operates as a distributor (rather than as an agent). In some cases, the terms ‘distributor’ and ‘reseller’ will be used interchangeably, but in other cases, a supplier may distinguish between ‘distributors’ – which it appoints in respect of a specified territory and allows to appoint a further tier of ‘resellers’ in that relevant territory – and ‘resellers’, which will have direct contact with customers.
Value Added Reseller (VAR) – is used in the IT/ Technology sector to describe a business that combines software provided by a third party with its own hardware, software and/or services to provide a ‘value added’ combination for the benefit of its customers. The VAR is permitted by the original licensor of the software (the supplier) to resell the software only in the ‘value added’ combination and cannot grant downstream licences of the software on a standalone basis.
Exclusive/ Sole/ Non-Exclusive Distribution – a distributor or agent appointed on an ‘exclusive’ basis will be the only representative of the relevant products appointed by the supplier in the relevant territory, and the supplier will also commit not to take active steps itself to make sales of the same products in the same territory.
In the case of a ‘sole’ distribution appointment, the supplier will again commit to make the distributor or agent the only representative it appoints in the territory, but there is no commitment from the supplier that it will not itself take active steps to make sales in the same territory.
A ‘non-exclusive’ appointment gives the distributor or agent the right to represent the products in the territory but leaves the supplier free to appoint other third parties to promote the products in the territory and to take active steps to make sales in the same territory.
Marketing Agent/ Sales Agent – terminology used to define the different types of agents that a principal may appoint.
Normally, the term ‘marketing agent’ (or ‘introducer’, ‘introducing agent’) will apply to an agent that is given authority to promote the products, but must refer any interested customers to the principal, and cannot itself enter into contracts on the principal’s behalf.
By contrast, in addition to the rights granted to a ‘marketing agent’, a ‘sales agent' will often be granted authority to conclude contracts with customers, acting on behalf of the principal.
Meet Our Specialists
Home-grown or recruited from national, regional or City firms. Our specialists are experts in their fields and respected by their peers.
Carla is a Partner and Head of our Commercial Team
Mohammed Akeel Latif
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Richard is a Senior Associate in our Commercial Team
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