Appointing overseas agents: some hints on contract terms

Appointing an agent or distributor is a relatively quick and easy way of getting into a new market and this applies increasingly to service companies as well as manufacturers.

Once you have decided on the territory where you want to market your goods or services, you will need a reliable agent. When you are engaging someone to promote your goods and services, it is important to check that the proposed agent has the right qualities and experience and, so far as you can tell, they are likely to deliver a reasonable return for you.

It is equally important that you have a written contract with them that sets out the key terms of the agreement. You can buy templates online from websites such as contractstore.com

This article summarises some of the issues you need to consider:

Specify the territory and products

Your prospective agent will want as big a territory as possible and they might even want to cover neighbouring countries. Resist this – start with a limited area and see how it develops, as it is much easier to expand than contract the territory. Similar principles apply to the products especially if you have a diverse range.

Exclusive or non-exclusive

Is this person your only agent? Are they appointed on an exclusive basis and what is their right to commission if they find a buyer for another territory?

Duration

What is the initial term of the agreement? Make it long enough to give the agent time to get established and into the market with your products, but no longer. It can then be renewable yearly.

Commission and payment

Clearly set out the commission payable – which may be on a sliding scale depending on sales volume – and specify when it will be due and how payment will be remitted. Allow for adjustment if there are refunds or customer defaults.

Sales targets

It is important to specify these so as to monitor performance and allow for adjusted targets in future years. This can also be useful to trigger termination of the agreement if the agent fails to perform, as well as challenging any claim for compensation.

Intellectual property

Protect your copyright and trademarks and limit the agent’s rights of use.

Termination

You need a clause that allows you to terminate if the agent commits a breach, fails to meet targets or becomes insolvent. They will also want the right to terminate for non-payment of commission.

Check the local law on termination and what compensation might be claimed.

Dispute resolution and governing law

You may think the contract should be governed by English law and disputes resolved in the English courts. But this may not be advisable. If the agent has no assets in England, there may be little point in suing them there as you would have to get the judgement enforced in their own country – and that is likely to necessitate bringing the proceedings all over again. Arbitration is often a good solution.

On this, and the terms generally, get legal advice in your agent’s country as well as your own before finalising the contract.