It is a legal contract between an agent and a principal.
It confers specific rights on the agent to enter into legally binding arrangements with a third party customer on behalf of the principal. The principal will be legally bound by the actions of the agent, provided the agent has acted within the scope of it’s authority.
Would I benefit from an Agency Agreement?
If you do not have the time, connections, resources or experience to market and promote your products or work, you may benefit from appointing a properly qualified agent. He or she can bring skills and experience to the table that a principal may lack. The principal can benefit from the direct experience of a suitably qualified agent to perform certain tasks on their behalf. This leaves the principal time to focus on their strengths.
Manufacturers or wholesalers are examples of the types of people who may benefit from using an agent to market and sell their products. Anyone who wishes to engage another more suitably qualified person to market and sell products on their behalf may find value in using an agent.
What rights and responsibilities does an agent have?
The agreement will set out the rights and responsibilities of both the agent the principal. Specifically, it will outline the scope of the agent’s authority to act in a way that binds the principal.
You should ensure your agreement is tailored to meet your own needs and confers specific rights and obligations on the agent that are appropriate to your unique situation.
Anyone who wishes to engage another more suitably qualified person to market and sell products on their behalf may find value in using an agent.
It is important to understand that the agent can only act on the principal’s behalf to the extent allowed by the terms of the agreement. For instance this may mean that a principal reserves the right to approve or decline all sales negotiated, before a binding contract is agreed to.
You may also wish to specify within the agreement whether the agent is being granted exclusive or non-exclusive territory. This means that the principal is able to ensure if need be, that all agents acting under his or her control get a fair share of the market available.
How is the agent paid?
In most cases, the agent will be rewarded for their efforts based on performance, or on a commission basis. A well-structured written agreement will provide a ‘win-win’ situation for both parties. Usually the agent is responsible for all of his or her operating costs, so it’s important to remember this when negotiating the terms.
What about stock?
Generally, an agent will not be required to hold stock. It is usually the principal’s responsibility to deliver the product or service to the customer. Once the product or service is delivered, the agent is then entitled to payment from the principal for services provided.
Other obligations of an agent imposed by law
He or she must carry out duties on behalf of the principal with a high-level of responsibility and trust. There is a special type of relationship between the two, known as a “fiduciary relationship”.
Certain obligations are imposed by law, in addition to their responsibilities set out in an agreement.
The primary responsibility of the agent is to act honestly and in the best interest of the principal, with due care, skill and diligence. An agent has a duty to act in person. If the agent is allowed to delegate it’s duties, then this should be specifically set out in the Agreement.
The agent must keep proper records and not secretly profit.
What else should I be aware of?
In most cases, the completion of a Confidentiality Agreement or including confidentiality provisions within the terms of the agreement itself, is also of value to the principal.
These agreements can be written, verbal or implied by the conduct of the parties involved.
Whatever the situation, it is always better to enter any agreement in writing . This way it clarifies the terms, conditions and duties of the parties involved and will provides strong legal recourse in the event of a misunderstanding.
