There is no contract of sale between the supplier and the ultimate purchaser of the goods.

Put simply, the distributor will buy the goods from the supplier and sell them on to its customer.

Key clauses in this agreement include:

• A detailed breakdown of the duties and responsibilities of both parties
• The geographic region in which the Distributor will operate
• Whether the Distributor will have exclusive or non-exclusive rights
• The rate, method and timing of payments
• Any non-compete agreement
• Protection of trade secrets and confidential information
• Supply of goods and minimum stock levels
• The duration of the agreement, termination and how breaches of the agreement are handled
• The principal’s option to buy-back products on termination of the agreement
• Although there should be terms and conditions of sale in place between the principal and distributor, it is less important for the supplier to be concerned with the terms on which the distributor sells on to his customer as it is the distributor who will be liable to the customer, not the supplier.

For anyone setting up a distribution network a distribution agreement is key to its success. It helps to promote trust and good will between both parties and gives them the confidence to maximise profits.

The purpose of an agency agreement is to set out the terms and conditions of the relationship between the business which wants to sell stuff (the Principal) and the intermediary who agrees to sell it on their behalf (the Agent). When a sale is made by the Agent, the law deems that a contract is formed between the Principal and the end customer.

Not to be confused with?

• A distribution agreement, in which a supplier sells goods to a distributor who then, as a separate transaction, sells the goods to his or her customer. There is no contract of sale between the supplier and the ultimate purchaser of the goods.
• A franchise agreement

• Subsidiaries or branches

A word of caution…

If you are planning on using a business intermediary, you would be wise to seek professional legal guidance. Not only does the law attach special legal meaning to agency relationships, but it’s possible for parties to find that they have entered into such a relationship without being aware of it.

Key clauses in an agency agreement include:

• A detailed breakdown of the duties and responsibilities of both parties
• The geographic region in which the Agent will operate
• Whether the Agent will have exclusive or non-exclusive rights
• The rate, method and timing of payments
• Any non-compete agreement
• Protection of trade secrets and confidential information
• Level of authority to make commitments on behalf on of each other
• The duration of the agreement, termination and how breaches of the agreement are handled

It is important that the Principal and Agent have clear written commercial terms agreed so that both parties know what to expect from their deal. Many relationships between suppliers (Principals) and Agents have gone wrong because they do not have this simple document in place. They have often relied on orally agreed terms or negotiations which have proved costly in terms of lost sales, commission and subsequent legal action to define and enforce the commercial terms. An agency agreement will make your relationship clear, giving both sides confidence in making the most of the opportunity.

European Directive and UK Commercial Agents Regulations 1993

Agency law is one of the areas where European legislation has had significant impact, and most of it is in favour of the Agent. An EC Directive was introduced to harmonise the law relating to commercial agents across Europe. In the UK, the EC Directive was implemented by the Commercial Agents Regulations 1993. They contain important provisions, which the Principal or Agent ignores at their peril, including:

• The right of the agent to have a written agreement
• The entitlement of the agent to a reasonable commission in the absence of any fee or percentage agreed in advance
• When commission is payable and on what transactions
• Minimum periods for notice of termination of indefinite agency agreements
• The right of the agent to either “compensation” or an “indemnity” on termination

The most important change which resulted from the Directive and the Regulations was the right of the agent to claim compensation or indemnity on termination of the agreement. Many Principals have been caught out here and many Agents have been unaware of their rights.

As a Principal it is important to structure your agency agreement to take into consideration the Commercial Agents Regulations 1993 or any dispute could be very costly in terms of compensation.

Franchisees

If you are a franchisee buying a franchise is a significant investment and you should not sign any agreement, or pay any fees or deposit, until you have taken legal advice from a solicitor.

The simplest way to begin is to obtain a specimen contract for them to review.

A typical franchise agreement will cover six main areas:

• Term
  The term of your franchise agreement covers how long the franchise lasts, how it is renewed and on what terms. It also looks at how your franchise can be terminated early. There may well be performance criteria to be met.
• Territory
  This is the geographic area which your franchise covers. Whether or not you have exclusive rights and how the borders of franchise territories are covered.
• Fees
  These come in many forms and are usually broken down into an initial fee, royalties on sales and a regular management fee. Depending on the franchise you may also have other costs to pay. Joint marketing is a common one.
• Support
  The amount of help you get from your franchisor is often critical for success both when you start your business and on a continuing basis, as you progress.
• Restrictions
  Most franchisees will place restrictions on what you are and are not allowed to do. They often stipulate how you should run your business. Minimum stock and staffing levels are common, as are where you purchase your stock and how much you can sell you product or service for.
• Exit
  The framework in which you can sell your business and what happens if you can’t continue in business for some reason – perhaps due to ill health or lack of funds.
  Other items which need to be considered include how “goodwill” is treated, insurance cover, and intellectual property rights.

We are often approached by new clients who have come to us late in the day in severe difficulties with their franchisor in all the above areas. If we had seen the franchise agreement in advance then most of these difficulties could have been averted. If the franchisor is a member of the British Franchise Association then the contract will be more straightforward but even here there are a number of areas where a new franchisor can be tripped up.

Franchisors

Growing your business using the franchise method is an exciting and proven method to accelerate your business. Your franchise agreement is probably your most valuable business document which will determine how enforceable your rights are against your network of franchisees.

Key to your success is having a sound, clear and fair franchise agreement. From your perspective a franchise agreement should encourage good franchisees whilst providing positive, proactive remedies for those who are under performing or causing difficulties for you or other franchisees.

Your franchise agreement needs to allow your franchisees the right amount of freedom so that they feel the business is their own whilst protecting you from fraud, misconduct and the stealing of your intellectual property.

Important things like providing the right amount of support for your franchisees is vital but you must also make sure that this operation does not cost you too dearly in terms of resources and money.

Getting your agreement wrong can mean that rogue franchisees may ruin your franchise brand and reputation or even copy your idea and start up in competition.

A well drafted franchise agreement will give potential franchisees the courage to sign up with you and perform to the best of their abilities. A poor franchise agreement could deter new applicants or leave you unable to get rid of a bad one causing you and other franchisees difficulties and problems.

Time and time again we come across companies who have entered into talks with another business and shared information only for negotiations to break down or The business use the information to their own advantage and the lack of a confidentiality agreement has had a catastrophic effect on the company divulging information without the right protection and remedy in law.

A confidentiality agreement is a legal agreement between you and another party in which you agree to divulge information (trade secrets) to them and they agree not to disclose that information to anyone else.

Generally, information qualifies as a trade secret or confidential when, it is not known in the public domain or, is only valuable as long as it remains secret or confidential.

Having an agreement in place allows you to approach and disclose information to potential partners, suppliers, customers and consultants knowing that they are legally required not to pass on that information. Most documents of this type follow a standard format but must be tailored to fit your requirements if they are to be of any real benefit.

You can use confidentiality agreements to protect you under many circumstances. Here are just a few to give you an idea:

• Intellectual property, trade secrets, eg a mathematical or chemical formula, programme or process, technical drawings and designs, algorithms
• Business plans
• Customer and prospect lists
• Commercial or trading information
• Formalise a relationship, eg between an employer and employee
• Employees are under a duty not to divulge trade secrets however, former and current employees are responsible for many breaches in confidentiality. Therefore it is safest to have a document which states exactly what is confidential and provides for when an employee leaves.

This document will enable you to undertake all sorts of exciting business activities with confidence including:

• Collaborating with others in the development of a product or service
• Working with other companies to sell and buy from each other
• Exploring joint ventures to pool resources and skills to develop a product or service which neither partner would be able to do alone
• Employing new staff and saying goodbye to old ones whilst ensuring there is a way to prevent them from divulging confidential information
• Putting an embargo on journalists in order that you can give information to the press and control when they are made public

A well structured and written document will make for a smooth relationship with your partner and deter anyone from breaching. If your partner breaches the contract, you can take them to court for damages. If you suspect that your business partner may be about to breach your confidentiality agreement, you can get an injunction to prevent this from happening.

The biggest problem in drawing up a confidentiality agreement is determining exactly what is and what isn’t covered by the agreement. Naturally you will want to cover the broadest spectrum of information whilst your partner will try to make the terms as narrow as possible.

Should you have to go to court then it is important that the definitions and exceptions in your document are appropriate for the type of trade secrets you are sharing. If your confidentiality agreement is flawed you may not be protected should it be tested in a court of law.