Advantages And Limitations Of Each Type Of Business Enity In Vietnam

Businessman his colleague giving contract to read and sign

“According to the Commerce Act 2005, although the goods have been delivered to and paid by the Agents, the goods’ owners are still the Principals. The Principals should, therefore, specify several contents to ensure their rights.”

Sales obligations

With regard to the Principal – Agent relationship, the Principals will always bear the risk of having their brand compromised as their goods have to be delivered to the Agents, who directly sell them to the consumers.
Thus, the Agent Agreement should specify two important categories as follows:

  • The Agents are absolutely not allowed to misuse the trademarks of the Principals for the purpose of deceiving the consumers on the origin of products, including but not limited to “using the Principals’ brand to promote for the products, which are not owned by the Principals”;
  • The Agents are absolutely not allowed to promote the qualities, characteristics or functions of products, which are different and inaccurate from those provided by the Principals, or from those recorded on the packaging or attached manual product.

Warranties of goods

In case that the Agents are capable (of technical qualifications, human resources and infrastructure) and obtain the consent from the Principals to implement the warranty, the Agreement just needs to stipulate the warranty process, request the Agents to ensure the compliance of such process and be responsible for compensation for all damage resulted from the violation of warranty process of the consumers.

Receiving complaints from consumers

To ensure the reputation of the Principals, the Agent Agreement should contain the provisions on the responsibilities of the Agents in receiving and notifying the Principals of any consumers’ complaints, as well as specify the time and form of the notice  which the Agents have the responsibility to implement.

Training for the Agents

As stipulated in Article 170 of the Commercial Code 2005, although the goods have been delivered to the Agents (or even been paid by the Agents), the real owner of the goods are still the Principals. Therefore, damage to goods during the warranty process of the Agents will result in damage to the Principals.
In order to avoid this loss, training for the Agents on the goods preservation skills, as well as the skills of receiving and selling goods is necessary. The training must include the following points:

  • the number of training sessions involved;
  • in which form and when the notice of each training session will be sent in advance;
  • the estimated time duration for each training session;
  • the training venues;
  • the responsibility for preparing the facilities (rooms, projectors, boards, etc.) and the documents (for printing and distribution);
  • the obligation of competent staff of Agents to fully participate in training;
  • the obligation to inform the number of participants in each training session of the Agents.

The obligation to guarantee minimum sales

The request for sales guarantee is one of the ways applied to motivate the Agents in fulfilling the sale obligation to the Principal.
It may depend on the economic situation, the regional markets and other factors that the Principal can flexibly pressure the sales in each periods. For instance, sales for the food items can be pressured to a higher rate at Tet holiday, sales for the air conditioners can be reduced in the rainy season, sales for the airfares can be pressured to a higher level in holiday seasons, etc.
On the other hand, the Principals also need to have measures taken into consideration when the Agents do not reach the minimum level of sales, for example:

  • The Principals should come up with measures to support (on human resources, ideas, promotional items) and the Agents have obligations to create all favorable conditions for the access and application of such measures;
  • The Principals have the right to enter the Agent Agreement with another Agent for ensuring the periodically sales in the ensured areas; or
  • The Principals have the right to unilaterally terminate the Agreement; to limit the sales having direct competitive nature.

In order to ensure the sales and promote the brand in the market, the Principal may consider to stipulate that “the Agents are not allowed to sell products having direct competitive nature with the products of the Principals except having the prior written consent from the Principals”.

PLF Law Firm 

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