Agency Agreement
[State]
WHEREAS, [Principal.Company.Name or Principal.FirstName Principal.LastName] (“Company”) makes available to its products and services (“Products and Services”) for sale to its customers. Information on the Products and Services is set out in Exhibit A.
WHEREAS, the Company desires to appoint [Agent.CompanyName or Agent.FirstName Agent.LastName] (“ Sales Agent”) as its exclusive sales agent to market and sell its Products and Services within a territory to be assigned to the Agent (“Sales Agent”) and the Agent desires to be appointed a Sales Agent of the Company.
WHEREAS the Company and the Sales Agent enter into this agreement for the purposes of reducing their arrangements into writing (“Agreement”).
IN CONSIDERATION of the mutual covenants and promises, the Client and the Vendor (individually, each a “Party” and collectively, the “Parties”) covenant and agree as follows.
1. Appointment
1.1 The Company hereby appoints and engages the Sales Agent as its Sales Agent on an independent contractor basis pursuant to the terms and conditions of this Agreement to market, solicit and sell its Products and Services and to perform the following specific duties (“Duties”):
1. [Duty 1]
2. [Duty 2]
3. [Duty 3]
1.2 The Company may add to or change the duties of the Sales Agent at its discretion from time to time.
1.3 The appointment of the Sales Agent by the Company shall be on an independent contractor basis and no provision in this Agreement shall be construed or deemed to create a relationship which could be construed as employer/employee, partnership, or joint venture between the Parties. The Parties are independent to one another without any reservation and for all purposes.
1.4 The Company may change the range and availability of the Products and Services at its discretion.
2. Term of the Appointment
The Company hereby appoints the Agent as the Sales Agent for a period of [Months] commencing from the execution date of this Agreement (“Term”). The Parties may extend the Term for additional periods subject to the mutual agreement.
3. Territory
3.1 The Sales Agent shall market, solicit and sell its Products and Services in the territory of [Territory Name] on an Exclusive basis (“Territory”). The Company may increase or reduce the Territory at its discretion by giving the Sales Agent written notice of [Days] days. If the Territory is reduced at any time, the Company shall have no obligation to compensate the Sales Agent in any way and the Sales Agent shall have no claim against the Company.
3.2 The Sales Agent shall not have any authority to market, solicit and sell the Products and Services outside the Territory. Any sales of the Products and Services outside the Territory shall be deemed to be a breach of contract by the Sales Agent.
3.3 For the duration of the Term, the Company agrees that it shall not appoint another sales agent within the Territory.
4. Sales Commission
4.1 In consideration of performing the Duties and marketing, soliciting and selling the Products and Services in the Territory, the Company shall pay the Sales Agent a sales commission of [Percent %] based on the net price for the sale of the Products and Services received by the Company (“Sales Commission”).
4.2 The Sales Commission shall only be deemed to be earned by the Sales Agent at such time that the invoices issued by the Company are actually paid by customers.
4.3 The Sales Commission shall only be payable to the Agent after the sales proceeds are received into the Company’s accounts in clear funds and the Company shall pay the sales commissions [Enter Payment Terms of the Sales Commission].
4.4 Unless the Sales Agent has had prior contact with a potential customer which has been advised to the Company, the Sales Agent shall not be entitled to any Sales Commission on any online sales made by the Company to any customer located in the Territory.
5. Obligations of the Sales Agent
The Sales Agent shall have the following obligations pursuant this Agreement: a) to use its best efforts at all times in it duties; b) use all reasonable efforts to achieve sales targets; c) to regularly undertake marketing and sales campaigns; d) pay for all costs for marketing, soliciting and selling activities and all administrative and office expenses; e) to attend trade shows and conventions related to the Products and Services; e) respond to all enquiries on a timely basis; f) assist the Company in collecting overdue accounts; g) keep the Company updated on all sales and local trends on a monthly basis; and h) to provide any available information on potential and projected sales on a quarterly basis.
6. Obligations of the Company
The Company shall have the following obligations pursuant this Agreement: a) to take reasonable steps to support the marketing and sales activities of the Sales Agent; b) to provide good quality Products and Services on a timely basis; c) to provide new Products and Services on a regular basis and provide information on them on a timely basis; and d) to support the Sales Agent with marketing and sales materials, product information, training, seminars and guidance on the Products and Services.
7. Confidentiality
The Sales Agent shall be under a duty of confidentiality at all times during the Term and for a period of [Months] (“Restricted Period”) following termination of this Agreement. Except as required by law or by court order, the Sales Agent shall not disclose or make use of the confidential information and intellectual property of the Company for any reason.
8. Non- Competition, Non-Solicitation and Non-Circumvention
8.1 Non- Competition.
During the Restricted Period, the Sales Agent agrees: (a) not to work for any entity or business that is in competition with the Company; (b) not directly or indirectly engage or participate in any business activity that competes with the Business of the Company; (c) not to use or deal in any confidential information and intellectual property of the Company in anyway; and (d) that the restrictions stated in this Clause shall apply in [Define Geographic Area].
8.2 Non-Solicitation.
During the Restricted Period, the Sales Agent agrees not to directly or indirectly: (a) solicit any business away from the Company or induce, encourage or intimidate its customers to stop dealing with the Company; (b) supply, provide or license any products or services the Company already offers or makes available to its customers or which it is working on or about to introduce to them; (c) solicit, induce or lure any employee, agent or contractor of the Company to terminate their employment or engagement with the Company; and (d) solicit, induce or lure any supplier of the Company to stop supplying its products and services to the Company or to supply to a competitor or to the customers of the Company.
8.3 Non-Circumvention.
During the Restricted Period, the Sales Agent agrees not to: (a) contact or attempt contact, directly or indirectly, any parties related to the Company with the intent or purpose of circumventing any provision of this Agreement; and (b) attempt to solicit any confidential information and intellectual property from such persons or entities nor to use any other party to undertake such actions.
8.4 The Parties agree that the intent of the provisions of Clause 8 is to allow the Company to protect its legitimate business interests and future business opportunities. The Sales Agent agrees that the terms of this Clause are fair and reasonable.
9. Termination
This Agreement may be terminated by the occurrence of any one or more of the following events:
9.1 The Parties having performed their respective duties and obligations to each other pursuant to this Agreement.
9.2 The Parties by mutual consent in writing agree to terminate this Agreement;
9.3 If either Party is adjudged insolvent or bankrupt or an involuntary petition is filed against a Party, or upon any assignment for the benefit of a Party's creditors, or upon the appointment of a receiver, liquidator, or trustee of any of a Party's assets, or upon the liquidation, dissolution or winding up of its business.
9.4 If either Party breaches any provision in this Agreement, and the breach is not rectified within [Days] days after notice in writing to the breaching Party, then the Other Party may deliver a second notice in writing to the breaching Party immediately terminating this Agreement.
10. Indemnity and Limitation of Liability
10.1 The Sales Agent agrees to defend, indemnify and hold harmless the Company from and against any claim, damage, liability, loss, cost or expense (including reasonable attorney’s fees) from any party arising, directly or indirectly out of: a) a failure on the part of the Sales Agent to perform any of the obligations referenced in this Agreement; b) an inaccuracy or breach of any warranties, undertakings or representations made by the Sales Agent and shall extend to legal actions of whatever nature arising out of such actions; and c) of any misrepresentation, negligence, false or malicious statements or other conduct of the Sales Agent.
10.2 The liability of the Company pursuant to this Agreement in all circumstances shall be limited to the Sales Commission earned by the Sales Agent. The Company shall not be liable to any party for indirect or consequential damages arising from any breach of contract.
11. Entire Agreement
This Agreement sets out the entire agreement and understanding between the Parties relating to the subject matter of this Agreement. There are no other conditions, promises, representations or undertakings between the Parties whether oral or written.
12. Severability
The Parties agree that if any provision of this Agreement becomes invalid or unenforceable for any reason: a) the offending provision shall be removed; and b) the remaining provisions of this Agreement shall be unaffected and continue to be valid and enforceable for all purposes.
13. Amendment
Any amendment to this Agreement must be mutually consented to by the Parties in writing.
14. Waivers
A waiver of a breach of any term of this Agreement or of a default by any Party shall not constitute or be deemed to be a waiver of any other breach or default that may already have occurred, or which may occur. Unless consideration has been received, any such waiver shall not prevent the Party making the waiver from subsequently requiring compliance with the waived obligation or default.
15. Delays, Indulgences and Omissions
A delay or indulgence or omission in exercising any right, power or remedy shall not be construed as a waiver.
16. Notices
Any notice pursuant to this Agreement shall be in writing and may be sent by: (a) regular mail to the other Party at the address stated in this Agreement and shall be effective 2 days from the date of dispatch; or (b) if permitted in the jurisdiction, by email or other means of written/printed/displayed digital means of communication and such notice shall be deemed to be effective 24 hours after dispatch.
17. Successors
The provisions of this Agreement shall be binding on and inure for the benefit of the Parties and their respective successors and assigns and legal representatives.
18. Costs
The Parties agree that they shall each bear their own respective costs for the preparation and negotiation of this Agreement.
19. Force Majeure
The Parties shall not be liable to each other for any loss of damage that may arise out of a delay in the performance or non-performance of their respective obligations pursuant to the terms of this Agreement where the cause of the delay or non-performance is due to causes beyond the control of the Parties, including but limited to pandemic, epidemic, tempest, storm, flood, fire, sabotage, riots, civil unrest, acts and policies of any Federal or State government and/or their Agencies, power grid failure and Acts of God.
20. Applicable Law
The interpretation of this Agreement or any part of it shall be governed by and construed in accordance with the laws of the State of [State] and shall be subject to the exclusive jurisdiction of the federal and state courts located in [County], [State].
User Note: In appointing a Sales Agent, the Company creates a fiduciary relationship with the person being appointed. The Company will authorize the Sales Agent to do certain acts on its behalf and to represent the Company in the designated territory. As such, it is important the Company performs appropriate background checks of the person being appointed. The Company should look beyond the results achieved by the results achieved in previous positions.
To avoid any misunderstanding and unnecessary problems, the Duties of the Sales Agent should be described in as much detail as possible.
For the Company, it is important that sales commissions only be paid out after sales proceeds have been collected. Clawing sales commissions can be difficult and could lead to conflict with Sales Agents which in turn can have effects on morale and sales.
If the Company does online sales, this issue will need to be addressed. Will the Company pay sales commission for online sales made to persons located in the territory of a Sales Agent? A compromise would be to pay the sales commission where the Sales Agent has previously made known to the Company the potential customers already approached before those parties place an online order.
The User Note is intended for guidance only and does not in any way constitute legal advice and Users should treat it accordingly.
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Give it a try nowWhat is an agency agreement?
An agency agreement is like a job contract where someone, the agent, does specific tasks for another person, the principal. This legal arrangement happens when the principal permits the agent to act on their behalf.
Businesses, especially small businesses, must understand how vital agency agreements are. You'll likely encounter them when you ask vendors, accountants, lawyers, or other third parties to help with your business.
Now, let's talk about the actual purpose of the agency agreement or agency contract. An agency agreement is a detailed document that spells out the rules of the agent-principal relationship.
This includes saying what the agent can do and how much they'll get paid. The contract also hands the agent the authority the principal decides on, like the exclusive right to act on the principal's behalf. Understanding these terms is super important for making sure the agency relationship runs smoothly.
An example is when hiring a real estate company to sell your home, where you decide whether they have the exclusive right to sell or if multiple companies can sell the property.
Look through the free template above to see what the agreement includes and how it protects your business.
Is an agency agreement legally binding?
Like most contracts, agency agreements are legally binding, whether it's a non-exclusive or exclusive arrangement. These contracts hold legal weight, and unless terminated, the agent gains the authorized rights to act on behalf of the principal and make agreements on their behalf.
To ensure the validity of an agency agreement, it typically involves a signed contract with a "cooling-off" period.
This period, usually around 24 hours after signing the contract, allows the parties to reconsider the conditions and decide whether to proceed with the relationship. The agent must be notified if the contract is terminated during this period.
Typically, a notice of rescission is utilized for this purpose. This provision adds a layer of protection, allowing parties to review and back out if necessary before the agreement takes full effect. Because after that, it’s officially official.
When should you use an agency agreement?
You should use an agency agreement when you need someone to represent you. Similar to having someone with power of attorney, an agent enters into a unique relationship with you, the principal, as they are obligated to act in your best interests.
Similar to a power of attorney relationship, the foundation of the principal-agent relationship in an agency agreement is also built on trust, creating what is known as a fiduciary relationship. In this type of relationship, the agent is bound to act in good faith and prioritize the principal's best interests to achieve the desired goals.
An important aspect of agency agreements is that the agent has the legal authority to bind the principal for their actions. For instance, hiring an accountant means giving them the right to act on your behalf for an agreed-upon fee.
What is an example of agency in a contract?
All of this talk of agencies… but how do you know if you are one?
Let's look at it like this. Imagine you own a small company manufacturing one-of-a-kind paper airplanes. Why paper airplanes? Have you ever flown one — they’re incredible. Back to the example.
Now, imagine that your small company wants to expand its market reach. To achieve this, you decide to bring in a sales agent. In this scenario, you initiate an agency agreement with an individual who will take on the role of your sales agent.
The beauty of agency agreements is that they can be utilized for various purposes (even if you don’t sell paper airplanes).
Here are some common examples of situations where you might hire someone to act as your agent:
- Accountant
- Stockbroker
- Financial planner
- Real estate agent
- Attorney
- Business agent
- Advertising agent
- Insurance agent
- Vendors of all types
An agency agreement can also be entered between 2 private individuals, too. That means you, as the principal, could hire someone to act as your agent.
Need someone to finesse that business deal? Or snag some auction treasures. Maybe even handle your weekly shopping spree? The possibilities are endless.
But, while you could seal the agreement with a simple handshake and a nod, it's better to have the whole story written down. That’s where the power of a written agency agreement comes in. Using our free agency agreement template above gives you the security of knowing that you (and your agent) are contractually safe.
What makes up an agency agreement
Besides the free template we’ve added, you’ll need other information when creating an agency agreement.
- Name of the principal and agent: Clearly state who is in this partnership.
- Purpose of the agency: Define the specific goals and tasks the agent will undertake on behalf of the principal.
- Exclusive or nonexclusive agreement status: Specify whether the agency is exclusive (sole representation) or nonexclusive (allowing multiple agents).
- Duration of the agency: Outline how long the agency relationship will last.
- Scope of Agent's Authority: Clearly articulate what the agent is empowered to do on behalf of the principal.
- Geographic limitations: Define the area where the agent is authorized to act.
- Agent's compensation: Detail the agreed-upon compensation for the agent's services.
- Binding acts: Confirm that the agent's acts bind the principal as long as they are conducted in good faith.
- Independent agent status: Specify that the agent is not an employee but an independent agent.
- Entire agreement clause: State that the agency agreement represents the complete understanding between the parties, and any oral agreements are invalid.
- Termination procedures: Clearly outline the procedures for terminating the agency agreement.
What do we mean by agency contract?
You’ve read this far down the page and might wonder if an agency contract is the same as an agency agreement. It’s a good question. Glad you asked! Spoiler alert: They can be used interchangeably.
An agency contract refers to a situation where one person engages another to perform a task on their behalf or to act as their representative in dealings with third parties. This arrangement is also called a 'Contract of Agency.'
In this dynamic, the person being represented is the 'principal,' while the individual employed to act on their behalf is called the 'agent'.
The agent's primary duty is establishing legal relationships with third parties on the principal's behalf. However, it's important to note that despite facilitating these connections, the agent doesn't become a direct party to the contract or assume any liability under that contract. The principal holds responsibility for all the agent's actions as long as those actions fall within the scope of the agent's authority. This underscores the distinct roles of the principal and the agent in an agency contract, with the agent serving as a representative without assuming direct contractual obligations or liabilities.
What are the advantages of an agency agreement?
Is an agency agreement starting to sound like exactly what your business needs? Agency agreements can have many benefits for the principal, especially if that principal happens to be a small business owner.
- Specialized skills: An agency agreement allows the principal to tap into specialized skills and expertise they may not have.
- Time efficiency: Hiring an agent under an agency agreement saves the principal valuable time. Instead of managing every detail, the principal can delegate specific tasks to the agent, allowing them to focus on core business activities. You'll save even more time with Contractbook’s free agency agreement template.
- Efficient business operations: With an agency agreement, business operations can run more smoothly and efficiently.
- Convenience: Having someone act on your behalf adds a layer of convenience. Whether managing advertising campaigns or handling legal matters, the agent takes care of tasks, freeing up the principal's time.
- Necessity in legal matters: In certain situations, like legal matters, having an agency agreement is beneficial and often necessary. For instance, hiring an attorney constitutes an agency agreement, granting the attorney the authority to represent the principal in legal proceedings.
What are the disadvantages of an agency agreement?
While agency agreements offer many advantages, they also come with potential disadvantages and risks, particularly in the legal relationship between the principal and the agent:
- Liability for agent's actions: One significant risk is that the principal can be held liable for any misconduct or mistakes the agent makes. If the agent engages in illegal activities or makes errors while representing the principal, the principal may be deemed responsible for those actions.
- Legal consequences: In situations where the agent commits a mistake or carries out an illegal act on behalf of the principal, the principal may be held legally accountable as if they committed the act. This places the onus on the principal to thoroughly vet and trust their agents.
- Ultimate responsibility: By authorizing the agent's actions, the principal bears ultimate responsibility for the consequences. Even if the principal needs to review a contract thoroughly, they may still be held accountable for its terms and conditions if the agent signed it on their behalf.
- Need for clear terms in writing: To mitigate these risks, the agency agreement must be in writing with transparent terms and conditions. Explicit language should limit the principal's liability if the agent engages in unauthorized activities. This documentation is vital for protecting both personal and professional interests.
Types of agency agreements: Exclusive, Sole, and Non-Exclusive
Entering into an agency contract is like choosing the flavor of your favorite ice cream – exclusive, sole, non-exclusive, and even undisclosed principal. Each comes with advantages and potential risks, making it a sweet dilemma.
Before you dive in, take a moment to understand the unique flavors of these agreements, making sure your choices create the perfect blend before you take that first tasty bite into commitment.
Exclusive agency agreements
Exclusive agency agreements are like giving one agent VIP treatment in a designated area — no other agents allowed.
This means one agent has the entire stage to themselves, giving them focused control to sell services or products from that supplier without interfering with other dealers or reps.
Sure, it's a win for the agent, providing assurance and control over their business. While it's a blockbuster deal for the agent, the manufacturer or supplier might miss out on potential sales from diverse agencies and lose the chance to spread their deals across different markets with multiple distributors. It's the classic exclusive vs. inclusive showdown in the business world.
Click here to use Virk’s exclusive agency agreement template.
Sole Agency Agreements
The selected agent is granted exclusive rights to market and sell the supplier's products within a specific area in a sole agency agreement. It’s similar to an exclusive agency agreement. Still, while it gives the supplier control over product distribution in the designated region, it may limit their ability to expand the network within that area.
Essentially, it designates the chosen agent as the exclusive entity responsible for marketing and selling products under the defined terms set by the affiliated company.
Non-Exclusive Agency Agreements
In a non-exclusive agency agreement, the principal business owner can employ agents and direct sales of products and services in the same market or region. This arrangement allows the supplier to involve multiple representatives within their territory, expanding their customer base accordingly.
However, with other agents in the mix, the supplier may need more control over product distribution than an exclusive model.
It's a trade-off between a broader reach and less direct control over how the products are distributed in the market.
Undisclosed principal agency agreement
In an undisclosed principal agency agreement, you allow the agent to work on your behalf without revealing your identity. It's like being the secret puppet master behind the scenes.
In this setup, the agent can negotiate deals for you without disclosing who they're working for, and in many states, any resulting sale is legally binding on you. However, it's important to check with a business attorney to ensure the legality of undisclosed principals in your country and region.
A famous example of this type of agency agreement is found in Disney’s history. In the 1960s, Disney wanted to acquire land in Orlando, Florida, for Walt Disney World. The agents' mission was to persuade landowners to sell without revealing Disney's involvement.
After the transactions, the landowners discovered that Disney was the undisclosed principal.
If they had known, they might have demanded more money or even refused to sell until they received additional compensation. It seems that the happiest place on earth was also pretty shrewd.
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