Commercial agency is a commercial activity whereby the principal and the agent agree that the agent buys or sells goods on its behalf to the principal or provides the principal’s services to customers for remuneration.
1. Parties to a commercial agency contract
The agency relationship of sale and purchase of goods arises from the commercial agency contract between the principal and the agent. Principal means a trader that delivers goods to a selling agent or delivers money for purchases to a purchasing agent or is a trader authorized to perform services for a service supply agent. Agent means a trader that receives goods to act as a selling agent, receives money for purchases to act as a purchasing agent or is an authorized recipient to provide services.
To carry out agency activities, the agent is free to choose a third party to enter into a contract for the sale and purchase of goods or a contract for the provision of services under specific provisions specified in the signed agency contract. When entering a contract for the sale and purchase of goods or a contract for the provision of services with a third party, the agent acts on its behalf and the obligations arising from the contract with the third party shall bind the agent to the third party. Next, the agent directly performs the contract for the sale and purchase of goods or provision of services with a third party.
2. Form of Agency
Commercial agency activities include the following forms:
- Offtake agency is a form of agency in which the agent buys or sells a full volume of goods or provides a full service to the principal.
- An exclusive agency is a form of agency in which in a certain geographical area the principal assigns only one agent to buy, sell one or several items or provide one or certain types of services.
- A general agency for the sale and purchase of goods or provision of services is a form of agency in which the agent organizes a system of affiliated agents to purchase and sell goods and provide services to the principal. General agents represent the affiliated agent system. Subordinate agents operate under the management of the general agent and in the name of the general agent.
Commercial agency activities may exist in other forms (commission agent, payment guarantee agent…) agreed upon by the parties to the agency contract.
3. Agent remuneration
The 2005 Commercial Law in Article 171 specifies agent remuneration as follows:
Unless otherwise agreed, the agent’s remuneration shall be paid to the agent in the form of commissions or price differences. Where the principal fixes the purchase price, the selling price of goods or the price of providing services to a customer, the agent shall be entitled to a commission as a percentage on the purchase price, the selling price of goods or the price of providing services.
In case the principal does not fix the purchase price, the selling price of goods or the price of providing services to the customer, but only fixes the price of delivery of the agent, the agent shall be entitled to the price difference. The price difference is defined as the difference between the purchase price, the selling price, the price of providing services to the customer compared to the price fixed by the principal to the agent.
In case the agency remuneration is not agreed upon by the parties, the agency remuneration will be calculated as follows:
- The actual remuneration that the parties have been previously paid;
- In case the actual remuneration that the parties have previously paid cannot be applied, the agency remuneration is the average remuneration applied to the same goods and services that the principal has paid to other agents;
- In case the above two remuneration levels cannot be applied, agency remuneration is the usual remuneration applied to the same goods and services above
4. Commercial agency term
Regarding the term of the agency, the parties shall agree upon themselves in the agency contract, however, the agency term shall only terminate after a reasonable time but not earlier than sixty days from the date on which either party notifies the other party in writing of the termination of the agency contract.
Unless otherwise agreed, if the principal notifies the termination of the contract as prescribed in the agency contract, the agent has the right to request the principal to compensate an amount of money for the time that he has worked as an agent for that principal.
The value of the compensation is one average month’s remuneration of the agent during the period of receipt of the agent for each year in which the agent acts as an agent for the principal. In case the agency period is less than one year, the compensation is calculated as one month of average agent remuneration during the period of receiving the agent.
Where an agency contract is terminated at the request of the principal, the agent shall not have the right to request compensation from the principal for the time it has worked as an agent for the principal.
The above are some regulations related to the operation of commercial agents. Commercial agency activities are activities that play an important role in a market economy. This is a large distribution channel to bring goods and services of producers and suppliers to consumers and users. To ensure stable and effective commercial agency activities, entities participating in agency activities need to grasp and comply with the provisions of law to avoid unnecessary disputes and unfortunate damages occurring and protect their legitimate rights and interests in agency relations.