Distribution and agency agreements are contracts between one party and another, to handle distribution or an agency of products.
When starting a business relationship, it is always recommendable to sign a contract between the parties, while this promotes among others a certain security about the intentions of the other party and helps to prevent possible future conflicts.
What is then the difference between an agency or distribution agreement?
In a distribution agreement the distributor is operating in its name and on its account, while in an agency agreement, the agent operates in the name of the supplier. A distributor buys a range of products from the supplier, and resells them to its clients, assuming in this way all the principal functions and risks involved in the sales process. The profit for the distributor consists of the margin, including profit and expenses, that the distributor adds on the original purchase price from the supplier. This means that distributors often work on a discount basis, and the business model could also include for example the process of stocking products, installation, and warranty for the work.
On the other hand, an agency agreement usually refers to a contract between an agent and a principal, in which the agent has the right to take orders from a third party (the client) or to establish a legal relationship between the principal and the client. The key element is that an agent, as mentioned before acts in the name of the principal and does not purchase the products from the supplier for resale, instead, agent company brings clients for which the principal sells directly the products, leaving a remuneration to the agency from the goods shipped or billed. While the agent only brings the clients, the agent does not, in general, accept risks of the sales process. Furthermore, agency agreements are regulated by law in Spain.
In case you are in a need of any kind of business agreement, such as an agent or distribution agreement in Spain or internationally, our experienced INTRO™ lawyers are ready to assist you in the preparation of any kind of contract.
*This article is only informative; it is not suitable for any legal advice. We do not take responsibility for any actions taken by it. No actions should be taken before studying the situation case by case.
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International Tax & Law