By Shirin Movahed
If you’re looking to make moves in the retail space, especially if you don’t have boots on the ground in those markets or limited capacity, retaining the services of a sales agent is a smart decision. But with any third party relationship, it is important to ensure that your relationship is set out in an Agency Agreement.
When do you need an Agency Agreement?
Whether you run a start-up, growth or well-established business, there will come a time when every company may find the need to hire a representative to act on its behalf in relation to various business opportunities such as promoting or selling the company’s products or services or purchasing goods from third parties. An agency relationship is formed when one party, the agent, is authorized to act on behalf of another party, the principal. This agreement creates a legal relationship between the parties. It grants power to the agent to enter into contracts which has the effect of binding the principal to those contracts. The agent’s power is limited, however, to the scope of authority granted to it under the terms of the agency agreement. For this reason, it is important to draft agency agreement that clearly defines the scope of the agent’s authority and provides a strong foundation for the parties’ dealings, allowing both parties to act with confidence within specified, clear boundaries. This will also limit any potential misunderstandings between the parties and clarifies the scope of the agent’s powers should a dispute arise in the future.
What are the Benefits of Retaining an Agent?
Agency agreements have many benefits for companies, especially smaller businesses who do not possess the internal taskforce to do the all various tasks such as marketing, sales or purchase of goods. Outsourcing these tasks to other professionals to act on your company’s behalf is beneficial to the growth and expansion of your business. It can also save you the cost of having to hire a full-time employee and allows you the opportunity to focus on your strengths in building your company while an agent handles the tasks you are not as equipped or don’t have the time to manage.
What are the Risks?
Although agency agreements can be very beneficial to growing your business, there are also some risks involved with these types of agreements. The major risk involved in working with an agent is that the principal is liable for the actions of the agent and any contracts executed by the agent on the principal’s behalf. For example, if the agent does not perform within standard industry practices or is negligent in any act or conduct, it will have a negative impact on the reputation of the principal’s business and can potentially expose the principal to a lawsuit. In order to limit the drawbacks of these agreements, it is important to clearly outline and limit the agent’s authority and to carve out protections for the principal where the agent goes beyond the scope of the powers granted.
Breakdown of the Agreement
In drafting a good agency agreement, it is important to outline the scope and boundaries of the parties’ relationship, including the purpose for hiring the agent, the specific responsibilities of each of the parties, including the principal’s financial obligations to the agent, the limitations of the agent’s authority, as well as affording the principal various protections for acts done outside the scope of the agreement. The agreement should also include provisions discussing term, contract breach and how to resolve disputes. A template is just a starting point, as every agency agreement will be different and should be tailored to the meet the specific needs of the parties. Care needs to be taken in carefully crafting your agency agreement in order to provide a well thought out legal framework of the parties’ relationship and avoid uncertainty if an issue arises in the future.