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Agency, Franchise or Distribution – What Are They?

Feb 08, 2016
Some clients come to us with an idea in their mind of a business they are partnering with, and a set way of how they wish to put it down on paper. Unfortunately, the idea does not always match the law and it is our job to help you piece together what type of contractual arrangement suits your instructions. Below is a useful checklist of the type of agreements you may have heard of, but may not be fully aware of what they are: 

Franchise Agreement
Generally speaking, it is the grant of a licence or a right by “A” to “B”, allowing “B” to use “A’s” business format, including their name and trademarks to operate their business. Examples of franchises are Domino’s Pizza, or Pizza Hut. While franchises work well, it is vital there is a strong market brand that you can sell, if you are looking to invest in an outlet. For someone setting up a franchise, you need to make sure that you have in place key clauses to prevent your brand being harmed in any way. They are complex agreements, and should be prepared by a solicitor, or thoroughly reviewed by a solicitor. There can often be obligations on party “B” to do certain things, or make various payments. It is therefore vital you consult with a solicitor to ensure all areas are covered; or if you are entering into an agreement, that you know what is expected of you. 

Distribution Agreement 
A distribution agreement will allow the supplier of the products, such as a manufacturer, to tell its products to another party, who then sells them on to customers. The distributor, while having contractual obligations on them, will most likely be given price discounts, and then can sell the products at a mark up to the final customer in order to generate their own profit. 

Agency Agreement 
An agent is appointed by the principal to negotiate and possibly conclude contracts with customers on the principal's behalf. He is paid commission on the sales he makes, usually on a percentage basis. The only contract for sale of the products is made between the principal and the customer. An agent will generally have no contractual liability to the customer. There are some regulations that may allow compensation for an appointed agent in the event the agency agreement is brought to an end. 

It is vital that you ensure the correct documents are all in place from the offset. The main benefit of this is that this will stop any disputes arising in the future. However, there are a number of advantages and disadvantages for each one so it is important you seek advice on what suits you, so you can not only know your legal obligations and rights, but also assess what is commercially right for you and your business as well.
 
For more information or to find out how we can help you, please contact a member of our Business Law Team on 01279 755777.

Nicola Lucas

About the author

Nicola Lucas

Nicola is a member of our Business Law Team handling all the commercial requirements of her clients such as shareholder agreements and negotiating on commercial ...

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