| Agent (A) appointed by principal (P) under agency agreement. A receives commission (usually agreed percentage of sales or introductions). Can be used for marketing services as well as goods. | Supplier (S) enters distribution agreement with distributor (D). D buys the goods from S for resale, and retains all profits from resale. Generally only suitable for marketing goods. |
| Requires close supervision by P. Less suitable if A + P are based in different countries or P has ltd time. More suitable for bespoke products, those requiring close contact / after-sales service. Useful to protect brand/ rep. | Requires ltd supervision. D decides how and where to market goods. More suitable for mass-produced products or where S likely to encounter unfamiliar markets / language problems. More difficult to protect brand / rep. |
| More suitable where direct contact is needed between Principal + customer (bespoke work / specialist after-care) | More suitable where there is no need for direct relationship between Principal and customer |
| More suitable where Principal needs to retain tight control over sales / marketing (although may include detailed contract provisions or second employees) | More suitable where Principal is unfamiliar with effective marketing strategies in local jurisdiction and requires local expertise |
| P remains contractually liable to his customers. A has limited financial risk, and has no initial outlay on stock, although A will probably earn less through payment of commission than profit from re-sale. | No contractual liability between S and D’s customers, although S may be liable in tort or under product liability legislation. D bears the risk of non-payment, claims from customers and unsold stock. |
| Often more expensive for P to set up+operate; however, commission paid to Agent generally less than margin earned by distributor (who takes greater financial risk) | More expensive for D to set up and operate, but can be more lucrative for D. D may have more incentive to exploit market to generate profit. |
| Agency agreements are unlikely to infringe UK or EU competition law | Can give rise to competition law problems. The grant of territorial protection may infringe Article 101 of the TFEU or the Chapter I Prohibition (see Chapter 28). |
| Under agency agreements, P retains freedom to fix her own prices for sale. | The imposition of RPM on a distributor is unlawful under UK / EU competition law. |
| Agency agreements in the UK are subject to the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053), which govern areas such as payment of duties of A+ P, commission, and payment of compensation / indemnity on termination of the agreement. Equivalent provisions apply throughout EU. | No equivalent legislation for distribution in EEA (there are in other jurisds, e.g. Gulf Co-operation Council). |
| Where P and A are based in separate jurisdictions, they may be regarded as one undertaking for corporation tax purposes, which may have adverse tax consequences for P. P liable for VAT on products supplied in its name. | D will generally pay all tax on profits and VAT. |
