Commercial agency is a commercial activity whereby the principal and the agent agree that the agent shall be on their own behalf purchase or provide services of the principal to customers to enjoy remuneration.
In recent years, agency activities have become gradually developed in many different fields and industries such as petroleum, liquefied petroleum gas, tobacco, alcohol, and soft drinks. Currently, Vietnam does not have official survey data on the number of general agents, nor the number of agents in specific fields, but it can be confirmed that commercial agency activities are growing strongly. In a commodity-producing economy, buying and selling activities between producers and consumers can be conducted in many different ways. Manufacturers can directly introduce and sell products to consumers. However, the activity of introducing and selling products consumes a large number of human resources. Therefore, they often develop a trading network by setting up a system of trading agents. These agents will become the bridge between producers and consumers.
1. Commercial Agency
A commercial agency is a commercial activity whereby the principal and the agent agree that the principal buys and sells goods on their own behalf or provides services to the principal. For customers to enjoy remuneration. In other words, an agent is just a party that sells goods or provides services on behalf of the business. Agents must absolutely not stipulate terms of sale, price, etc., contrary to the enterprise’s policies, unless otherwise agreed in the agency contract. This also means that the principal is the owner of the goods delivered to the agent.
2. Note for Agency Commercial contract
A very essential issue that enterprises as well as individuals wishing to become commercial agents should keep in mind is the agency contract and the termination of this contract.
- Form of contract: Please note that the agency contract must be made in writing or in another form with equivalent legal validity, as clear representation will be the most convincing evidence that the parties may invoke it to defend themselves in the event of a dispute. In addition to normal handwritten or typed documents, there are a number of other forms that are still considered legally equivalent to documents, such as email and fax.
- Validity of contract: In an agency contract, the parties can agree on the contract’s validity period.
- If either party voluntarily terminates the contract before this time limit, it must compensate the other party. The value of this compensation will be determined based on the damage caused by the early termination of the contract.
- However, if the parties do not agree, the agency contract will only terminate after a period. earlier than 60 days from the date 1 of the 2 parties notifies the other of the termination of the contract. It should be noted that this notice must also be made in writing.
- Termination of contract: It should be noted that this notice must also be made in writing. In case the agency contract is terminated at the agent’s request, the agent has no right to demand compensation from the principal for the time that he has acted as an agent for the principal. If the agency contract is terminated at the principal’s request, the agent has the right to request the principal to compensate him a sum of money.
- The compensation value is 1 month of average agent remuneration during the period of agency receipt 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’s average agent remuneration during the period of agency receipt.
- For example, Agent B has been an agent for company A for 3 years with the following remuneration: in 2010: 20 million/month; 2011: 35 million/month; 2012: 15 million/month. The agency contract between company A and enterprise B does not specify the time limit for terminating the agency work of agent B. Now company A has requested to terminate the contract with agent B. Then company A must compensate agent B an amount of: 1 month average remuneration = (20+35+15)/3 = 23.3 million dong.
- Remuneration in agency activities: It is clear that remuneration in agency activities is a very important point in an agency contract because it is not only a condition for the agent to perform its obligations well but also a basis for the parties to determine compensation upon termination of the contract.
- The Commercial Law (2005) clearly states that if the two parties do not otherwise agree, the agent’s compensation is paid to the agent in the form of a commission or price difference. Thus, depending on each method of delivery, receiving the obligation to buy and sell goods or provide services, the agent will receive remuneration in the form of commission or price difference. Thus, depending on each method of delivery, receiving the obligation to buy and sell goods or provide services, the agent will receive remuneration in the form of commission or price difference.
- In case the principal determines the purchase price, the selling price of goods or the price of providing services to the customer, the agent shall be entitled to a commission calculated as a percentage of the revenue that the agent brings to the enterprise. If the principal does not fix the purchase price, the selling price of goods or the price of service provision for the customer, but only assigns the delivery price to the agent, the agent is entitled to the price difference. The price difference is determined as the difference between the purchase price, the selling price, the price of service provision to the customer and the price set by the principal for the agent.
- Normally, payment for goods, services and agency remuneration is made in installments after the agent completes the purchase or sale of a quantity of goods or the provision of a certain volume of services. To clarify this provision, here is a practical example of the 2005 Commercial Law: Company A specializes in the production of powdered milk. Company A and Mr. B have signed an agency contract under which Mr. B will become a distribution and sales agent for company A. In the first quarter of 2012, company A assigns Mr. B’s agent to the shipment of 800 milk cartons. There are 2 cases:
- Company A sets a price for agent B, who must sell to the market at a price for VND 200,000/box and a commission of 5% of total revenue. Agent B’s remuneration is: VND 200,000 x 800 x 5% = VND 8,000,000.
- Company A assigns agent B a selling price of VND 200,000/box without stipulating the market price. Agent B sells at a price of 205,000 VND/box. Agent B’s remuneration is: (205,000 – 200,000) x 800,000 = VND 4,000,000.
As mentioned above, the agent only acts on behalf of the principal to buy and sell goods or provide services and receive remuneration. However, during operation, if the agent performs any illegal acts such as: replacing the company’s real goods with fakes or imitations to make a profit, performing acts of competition without healthy with other agents, etc., the agent will have to take full responsibility before the Law for his unconscionable. Additionally, if principal is partly at fault for that illegal actl, this party will be jointly responsible for the agency’s illegal acts, for example: the principal provides a supply of poor quality, or expired goods to the selling agent.
When an enterprise intends to expand its product distribution network in the form of a commercial agency or an individual, any organization that intends to become an agent of an enterprise to receive remuneration should find out Clearly understand the provisions of commercial agent laws so that you can protect your interests at the most optimal level.