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What is a Sales Agency Agreement?

In certain circumstances, a person will appoint another person to act on its or his or her behalf. The former is the Principal and the latter are the Agent. The Agent may act on behalf of the Principal to bring about legal relations between the Principal and a third party.A Sales Agency Agreement outlines the rights and responsibilities of the parties to the Sales Agency Agreement.

A Sales Agency Agreement is intended for use in connection with the introduction and promotion of sales of products or services by an independent Agent on behalf of a Principal within a defined territory. Sales agency agreements can have many benefits for a Principal as an Agent may have the necessary sales expertise or because of the Agent’s contacts in the industry with customers.

The Agent may be a physical person or a company.

What is an Agent?

An Agent acts on behalf of a Principal in accordance with the Principal’s scope of authorisation.

The Agent can commit the Principal to legal relations within the scope of authority that the Principal gives to the Agent.

Many businesses use intermediaries to handle business transactions on their behalf. Agents are selected for their expertise and understanding of a market, service or to overcome the problem that the Principal may not be physically present to source customers. Agents may be used for many different services or alternatively, may be responsible for sourcing customers for the Principal.

Agent’s Authorisation

An agent will need to know that it has the necessary authorisation to act on and carry out assigned activities which may otherwise be unauthorised. A sales agent’s main role is usually to introduce and find customers for the Principal. The Agent only has the power to negotiate and enter into agreements on behalf of the Principal to the extent that a Principal authorises that action. The Sales Agency Agreement will typically set out what the Agent is authorised to do and in what territory the Agent can carry out its sales activities.

Main Purpose

The main purpose of a Sales Agency Agreement is to establish the level of legal obligations which the Principal and the Agent have towards each other and what level of authority the Agent has to represent the Principal. The Principal authorises the Agent to carry out certain acts which results in certain rights and obligations. The Agent acts on behalf of and for the benefit of the Principal. Essentially, the role of the Agent is that of facilitator and an Agent usually is not a party to any ensuing agreements that result from the Agent introducing customers to the Principal.

Fiduciary Duties of the Agent

The Agent typically owes certain duties in law which include the duty to perform the activities in compliance with the Principal’s instructions, the duty to act with due care and skill, the duty to account to the Principal for sums paid, the duty to avoid a conflict of interest and act in the ‘best interests’ of the Principal, the duty not to make a secret profit and the duty not to misuse the Principal’s confidential information.

 Check List of Provisions for an Agency Agreement

The Parties to an Agency Agreement should consider including terms in their Agency Agreement as to the appointment of the Agent and the scope of the Agent’s authority, the term of the Agreement, the territory and fields of activity in which the Agent can act, the obligations of each of the Principal and Agent, sales, targets, payment and commission, insurance, intellectual property rights, termination and disputes.

Take Away Points and Questions

  • Does your Agent have the experience and contacts to carry out the functions assigned to the role?
  • Consider the Agent’s scope of authority and what terms or limitations apply to exclusivity.
  • Will the Agent have authority to bind the Principal in certain circumstances?
  • Termination of contract consequences.

Lara Alexandra, Legal Assistant and Trade Mark Administrator

We are a team of trade mark attorney and IP specialists based on Gold Coast and Sydney. If you have any questions about trade mark and brand protection, contact us on 1300 77 66 14


Disclaimer. The material in this post represents general information only and should not be taken to be legal advice.

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