An Agency Agreement
is a legal contract between “the principal” and “the agent” whereby a
fiduciary relationship is created that defines the agent's duties and
authority.
The Principal grants the Agent the right to
create legal relationships with third parties and to work under the
principal’s control and on his behalf. Therefor the principal agrees to
be bound by the actions of the agent. For example if the agent
negotiates an agreement with one of the principal’s customers, the
principal agrees to honour the agreement as if the principal had
himself personally made the agreement.
With a sales agency
the Agent’s role is to find, negotiate and close sales on behalf of the
principal. It’s important to understand the agent only has the
authority to negotiate and enter arrangements on the principal’s
behalf, to the extent allowed by the terms of the agency agreement. For
instance this may mean that a principal reserves the right to approve
or decline all sales negotiated by the agent, before a binding contract
is entered.
In most cases the sales agent will be rewarded
for his/her efforts based upon his performance. This means a well
structured agency agreement will provide a win win situation for both
parties. Usually the agent assumes all of his or her operating costs so
its important to remember this when negotiating your agreement.
Generally
an agent will not be required to hold stock of the principal’s
products, it’s the principal’s responsibility to ensure he has the
resources to deliver the product or service to the customer. Once the
product or service is delivered the commission Agent is then entitled
to payment from the principal.
Agency agreements also
provide flexibility for the parties whereby the Agent may be granted an
exclusive or non exclusive territory sometimes called a sole agency.
This means the principal is able to ensure if need be all agents acting
under his control get a fair share of the market available.
Remember,
when negotiating your agency agreement both the agent and the principal
will have a legal duty. In particular, the agent is placed in a
position where a high-level of responsibility and trust is imposed.
This is known as a “fiduciary relationship” and certain obligations are
placed on the agent regardless of any contractual responsibilities. The
primary responsibility of the agent is to act honestly and in the best
interest of the principal.
Agency agreements can be
written, verbal or implied by the conduct of the parties involved. The
Law and the Tax office may look at the actions of those involved in
deciding if an agency can be inferred. If the parties have acted in a
way that reasonably infers the agent is representing the principal with
the knowledge and approval of the Principal then an agency arrangement
is presumed.
Whatever the situation, it is always better to
enter any agreement in writing. A written agreement clarifies the
terms, conditions and duties of the parties involved and will provides
strong legal protection in the event of a misunderstanding.