Agency agreement

What is an agency agreement?

An agency agreement is a contract under which one party – the agent – undertakes, for remuneration, to permanently mediate in the conclusion of contracts for the principal or to conclude them on the principal’s behalf. In practice, this type of arrangement is used when a business wants to develop sales, distribution, customer acquisition, or commercial representation through an external intermediary acting on a continuing basis rather than on a one-off basis.

An agency agreement is not limited to a simple introduction of clients. Depending on its wording, the agent may search for customers, negotiate commercial terms, collect orders, maintain business relationships, promote products or services, and in some cases enter into contracts in the principal’s name. The precise scope of authority depends on the contract and, where relevant, on additional powers of attorney. This distinction is important, because not every commercial intermediary is authorised to bind the principal directly.

In legal terms, an agency agreement is usually treated as a continuing commercial relationship. It differs from a standard services agreement, brokerage arrangement, or employment contract. The agent typically acts independently, runs its own business, and is not subordinated to the principal in the same way as an employee. At the same time, the relationship may create specific rights and obligations concerning commission, exclusivity, post-termination restrictions, notice periods, access to information, and, in some jurisdictions, compensation or indemnity after termination.

What does an agency agreement cover?

An agency agreement may regulate a broad range of commercial and legal issues. The most important part is usually the definition of the agent’s mandate. This includes the territory in which the agent may operate, the customer group covered by the arrangement, the products or services included, and whether the agent acts on an exclusive or non-exclusive basis. A carefully drafted contract should also clarify whether the agent may appoint sub-agents, represent competing businesses, or use the principal’s trademarks and marketing materials.

Another key issue is remuneration. In many agency relationships, the agent is paid commission linked to contracts concluded with customers obtained or handled by the agent. The contract should define when commission becomes due, how it is calculated, whether it applies to repeat business, which transactions are excluded, and what happens if a customer fails to pay or the contract is later cancelled. Poorly drafted commission clauses often lead to disputes, especially in cross-border business where accounting, currency, tax, and reporting practices may differ.

The agreement should also address duties of cooperation and loyalty. The agent is commonly expected to act in the principal’s interest, provide relevant market information, and protect confidential information. The principal, in turn, should provide documents, pricing information, product details, and notice of acceptance or rejection of transactions obtained by the agent. In some legal systems, statutory rules supplement these duties and cannot be excluded to the detriment of the agent. This is particularly relevant where the agreement is governed by the law of an EU Member State implementing Council Directive 86/653/EEC on self-employed commercial agents.

Termination provisions are equally important. Since agency agreements are often intended to last for an indefinite period, the contract should specify notice periods, immediate termination grounds, settlement of pending commission, return of materials, handling of customer data, and the consequences of post-termination non-compete clauses. Depending on the applicable law, the agent may also have a statutory claim for compensation or indemnity after the relationship ends if the agent brought new customers or significantly increased business with existing customers and the principal continues to derive substantial benefits from that work.

When is it worth using an agency agreement?

An agency agreement is often useful when a company wants to enter a new market, build a sales network without creating a local branch, or rely on a specialised intermediary with industry contacts. It may also be appropriate where direct employment is not commercially justified, but the principal still needs a stable and ongoing market presence. For manufacturers, technology providers, and service businesses, this structure can be an efficient way to expand operations while keeping the commercial model flexible.

Private individuals use agency-type arrangements less frequently in the commercial sense, but entrepreneurs, partnerships, and companies often rely on them in domestic and international trade. The arrangement may be connected with sectors such as industrial sales, real estate-related business services, software licensing, medical products, transport, luxury goods, financial intermediation, or business development support. In each case, the legal and tax consequences should be assessed individually, especially where the agent acts across borders or handles regulated products or services.

Early legal review is advisable before the agreement is signed, amended, or terminated. A timely consultation can help avoid unclear authority rules, unenforceable exclusivity clauses, commission disputes, unlawful non-compete restrictions, data protection issues, and unexpected post-termination claims. It may also reduce the risk of court proceedings, regulatory exposure, reputational damage, or financial loss resulting from an improperly structured commercial relationship.

Support from a law firm in matters relating to an agency agreement may include in particular:

drafting and negotiating agency agreements, annexes, and termination notices,
reviewing commission models, exclusivity clauses, and post-termination obligations,
assessing authority to conclude contracts and the need for powers of attorney,
analysing cross-border issues, including governing law and jurisdiction,
advising on termination risks, including possible indemnity or compensation claims,
representing clients in disputes concerning unpaid commission or breach of contract.

Need legal assistance with an agency agreement? Contact us.

Agency agreement