Sales Agent & Distributorship Agreements
Terms
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- What are the two most common means of distributing products abroad?
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1) Independent Foreign Agent
2) Independent Foreign Distributor - Independent Foreign Agent
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⬢ Does not take title of goods
⬢ Usually paid in combo of salary + commission
⬢ Doesn't bear risk that buyer won't pay
⬢ No power to bind U.S. supplier - Does an Independent Foreign Agent have the power to bind the U.S. supplier?
- Not usually, but may be considered to have implied power to do so, and certainly may be given express authority to do so.
- Which form of distribution tends to create more legal problems for companies selling abroad?
- Independent Foreign Agents
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(True or False)
Agency rules might be mandatory and not subject to alteration by contract, especially in civil law countries. - True
- Independent Foreign Distributor
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⬢ Buys company's products and resells them through its foreign network for a profit.
⬢ Does not have power to bind U.S. supplier. - What are the primary risks that an Independent Foreign Distributor faces?
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⬢ Risk of being unable to sell goods, which it has taken title to.
⬢ Risk of purchaser not paying - Should a Independent Foreign Distributor agreement clearly define a principal-principal relationship or a principal-agent relationship?
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principal-principal relationship for limited risk.
Language from independent contractor contract may be useful here. - Where foreign laws applicable to distribution agreements have been enacted, they are likely designed to...
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1) Benefit local agents/distributors, especially with regard to termination
2) Restrict or prohibit the use of agents/distributors
3) Apply domestic labor law to the distribution agreement - Sale of goods to an independent foreign distributor means seller likley relinquishes control over what two things?
- price and where the product can be sold (thus some sellers choose agency agreements for this reason)
- Why is it important to keep an agent by contract rather than an agent by employment?
- Greater rights are typically granted to employees than contractors in most countries, and employees are likely subject to local labor laws.
- Why might the choice of an independent distributor rather than an employee agent create antitrust problems?
- Exclusive distributorship agreements may conflict with local laws, as might contracts prohibiting distributors from selling competing goods.
- In general, is it better to contract with an individual or a business entity?
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Business entity.
If agent is an individual, local labor laws may apply even if attempt is made to call individual an independent contractor. - "Denial of import privileges" clause
- Allows supplier to stop sending products to a particular distributor if a "denial of import privileges" action is taken against it by a foreign court
- When are problems most prevalent for a company using a foreign distributor?
- Upon termination. Many countries (especially developing) don't look favorably on large foreign firms accused of unfair or wrongful termination.
- "Denial of export privileges" clause
- Allows suspension or termination of obligations to foreign distributor if U.S. government imposes restrictions on exports