Contracts: Distribution or agency?

Distribution and agency agreements are often confused. And this is not surprising: there are similarities. However, it is crucial to be aware of the differences. Why is that so important? And what are the differences?

Distribution and agency

In both distribution and agency a supplier or manufacturer uses an intermediary to promote and distribute his products. At first it may not seem to be significant how the relationship between the supplier and intermediary is characterized. Yet, the qualification is of vital importance, as in addition to the similarities there are crucial differences.

Differences between distribution and agency

• The intermediary in an agency relation (the agent) acts in the name of and for the account and risk of the supplier or manufacturer (the principal), whereas the distributor is considered as an entrepreneur who acts in his own name. The agent therefore is just a broker. However, the distributor buys products or services from the supplier or manufacturer and then concludes agreements with customers himself. Therefore, distributors face more financial risks.
• Upon termination of the agency agreement, the agent is often entitled to clientele compensation (goodwill indemnity). A distributor will not be entitled to this. However, the distributor can claim damages.
• The agency agreements are legally regulated, whereas distribution agreements are innominate contracts. The law does offer the agent a certain protection. When concluding distribution agreements the parties have more liberties in making arrangements. However, if these arrangements are not recorded at all or not properly recorded, this can lead to uncertainties.
• The notice period of distribution agreements is usually longer than the statutory notice period of agency agreements.

Qualify it and lay it down!

Predicting the future is difficult. However, when entering into a long-term agency or distribution relation it is crucial to think about what the situation could be like after one, two or ten years. Clarity from the start will prevent hassles later on. Therefore, it is advisable to devote attention to qualifying the relationship (particularly by asking questions as: who bears the risk of the intermediary’s actions and who will determine the sales strategy?), to actually putting this qualification into practice and to drafting a sound written distribution or agency agreement. We will gladly help you to do so of course!

Distribution and agency lawyers

Do you have any questions about this blog? Would you like us to assess or draw up a distribution of agency agreement for you? Or do you have a dispute with your distributor, agent or principal? Please contact us: