I. Agency Agreement
The agent is an independent entrepreneur who charges a commission for finding new contracts. He is only entitled to commission for successfully concluded contracts. The conduct of agents is regulated to an extent by a series of EU directives; this means that the legal position of agents is similar in most European countries.
The most important terms that need to be laid down within the agreement are:
- The agent's scope of duties
- The agent's area of speciality
- Sole or exclusive agency
- Agent’s responsibility for customers' non-payment of goods
- Duration of the contract
- Non-competition clause
One of the terms that do not need to be agreed upon is the indemnity payment on termination of the contract, which by European law is automatically implied into an agency agreement and therefore cannot be restricted or excluded by the contracting parties.
Most problems arise from the prohibition of competition. That is why the agreement should clarify if the agent is allowed to work for other firms. It also is important to stipulate whether the agent is entitled to other payments apart from his commission, e.g. reimbursement of expenses.
Some aspects still leave room for negotiation and these should be carefully considered.
Fees
Agency agreements can be drafted relatively quickly, if necessary within two or three days. To keep the costs low it is recommended that you first discuss the main conditions of the collaboration with the agent. Experience shows that the time needed by the lawyer to draft the agreement is about 10 to 15 hours. If the same agreement is to be concluded with several agents then one or two hours for each additional contract need to be added to account for the individual needs of each agent.
2. Distributor
The distributor's position is basically different from that of an agent even though he too is an independent entrepreneur.
The principal sells goods to the distributor who then sells those goods on his own account. The distributor's profit is the difference between the price at which he has purchased and the price at which he has sold the goods, less expenses.
There are no special legal provisions regulating the contractual relationship between the distributor and the principal in Germany. But as a result of court rulings several principles prevail, in particular regarding indemnity payments which may be due if the distributor introduced new customers or significantly increased the principals business with existing customers. A distributor is only entitled to an indemnity payment if he is integrated into the sales organization of the principal and if, on termination of the contract, he is obliged to hand over his list of customers to the manufacturer. It is not sufficient for the distributor to say that the principal got to know his customers, which is the usual case, during the course of the business relationship.
Concrete contractual provisions are therefore of utmost importance. It is advisable - although not required by law - to conclude a framework agreement, which covers the main aspects such as:
- Goods or services which are the subject of the contract
- Precise geographical area of distributor's territory
- Exclusive/non · exclusive distribution
- Restrictions on competition during the agreement or after its termination
- Investment in sales promotion such as contributions to advertising budgets.
Fees
Distribution contracts are time consuming, mainly because there are often considerable differences regarding the expectations of the parties concerned, this means that the first draft may need to be modified several times. It is realistic to reckon with a time span of about 20 to 25 hours.