Valuable information about distribution contracts
Commercial agent, authorized dealer and commission contracts
Which distribution channels are suitable for your company? What differences, advantages and disadvantages do distribution contracts entail? What roles do the commercial agent, the authorized dealer and the commission contract play? WINHELLER provides advice in commercial law to companies doing business in Germany. No matter if you’re developing or expanding distribution channels, drafting distribution contracts or are engaged in a dispute with distribution partners, we can help you.
A commercial agent is defined as a self-employed trader entrusted with arranging business for another businessman or concluding business in his name, according to the definition of the law in Section 84(1) German Commercial Code. Commercial agent law is thus a legally regulated part of the not fully codified distribution law. It also covers other, legally unregulated distribution contracts, such as authorized dealer and franchise contracts.
The rights and duties of the commercial agent are not only regulated in the German Commercial Code., Europe has also adopted its own regulations, one example being Directive 86/653/EEC, referred to as the Commercial Agent Directive. As a result, the European Court of Justice also issue occasional decisions, which are of direct importance for commercial agent law. Depending on whether the commercial agent must be qualified as a "genuine" or "non-genuine" commercial agent, German and European antitrust law should also be taken into account.
While no deviation to the disadvantage of the commercial agent is allowed from some legal requirements, such as with regard to commissions, compensatory claims and terminations, others are left to the free agreement between the parties. If the commercial agent's territory lies outside the area of the European Union or the European Economic Area, the parties are not even bound to the compulsory provisions in drafting a commercial agent contract.
Attention: Practical implementation in case of doubt more important than provisions in the distribution contract
Compared to the authorized dealer, the commercial agent does not act in his own name and on his own account, but rather in the name and on the account of an entrepreneur. If he is thus also part of the entrepreneur's sales organization, he must nevertheless be substantially able to freely design his activity and to determine his working hours. The decisive factor here is not what is stipulated in the commercial agent contract, but rather how the contractual relationship is experienced in practice.
If there is a lack of personal freedom, it can be presumed that the commercial agent is an employee of the company and is only seemingly independent. If such circumstances do exist, social security contributions and income tax would have to be subsequently paid. The "commercial agent" would also be entitled to various employment rights enforceable through the labor courts, such as those according to the Federal Vacation Act.
Important elements of a commercial agent contract
The essential points of the commercial agent contract pertain to provisions
- on contract territory and the question as to whether the commercial agent acts as a local agent or as sole agent, etc.,
- on the obligations of the commercial agent, such as his obligation to safeguard interests, his mediation obligations, and credit assessment obligations and regarding, also post-contractually, the non-competition clause, etc.,
- on the obligations of the entrepreneur, such as the obligation to hand over materials and to assist the commercial agent, regarding the obligations to communicate and to provide information,
- on the remuneration of the commercial agent, particularly with regard to the requirements, the amount and the due date of the commission, regarding the reimbursement of expenditures and regarding the entitlement to compensation, etc.,
- on the duration of contract and the consequences of an ordinary or extraordinary termination by one of the parties.
Let our commercial law attorneys review your contract draft, we will make sure it’s solid. You can also contact us with your ideas and we would gladly draft a distribution contract for you.
According to the definition of the law in Section 383(1) German Commercial Code, a commission agent is whoever professionally undertakes to purchase or to sell goods or securities on behalf of another in his own name. As a rule, he works temporarily for several clients. Whoever regularly transacts business on a commission basis for a specific client is a commission agent.
The commission business, as a legally regulated special case of the commercial law, has its place particularly in the used car trade (among other things, for reasons of tax savings), in the art and antique trade and in advance ticket sales for theater and concert events, not least also in the securities business of banks ("underwriting commission") and in trading in financial instruments ("financial commission business").
Obligations of the commission agent
In relation to third parties, the commission agent as seller is comprehensively responsible for the fulfillment and warranty as well as for the compliance with obligations under public law. Extensive regulations are also found particularly for financial operations outside of the German Commercial Code, in the German Securities Trading Act for example. Due to his proximity to the commercial agent not only commission law, but also commercial agent law applies to commission agents. Antitrust law, which are theoretically not applicable to commission contracts, might also apply to commission agents.
Important elements of the commission contract
The commission contract should stipulate in particular
- the obligations of the commission agent, such as his obligation to safeguard interests and comply with instructions, his obligation to disclose and accountability, etc.,
- the own-name transaction right of the commission agent,
- the commission, particularly as to whether the commission agent should be entitled to that which he obtains above the minimum price set by the client,
- the consequences in the case of defectiveness of the commissioned goods upon delivery,
- liability in the case of loss and damage to the commissioned goods.
Our attorneys in the area of commercial law will gladly review your commission contract before signing. We strive to answer all your questions regarding the advantages and disadvantages of a distribution contract.
The authorized dealer, like the commercial agent and the commercial broker, is a marketing agent, who in his own name and on his own account in the framework of a contractual relationship with an entrepreneur distributes his goods and is thereby integrated into the sales organization of the entrepreneur.
He is commonly found in the automotive sector ("authorized repair shop"), in retailing in the areas of electronics, watches, cosmetics, and porcelain. The authorized dealer is also engaged in distribution in the trade of investment goods and in the industrial supply sector.
A principal obligation of the authorized dealer is the acceptance of the entrepreneur's products. The entrepreneur in turn is obligated to sell his products to the authorized dealer. Depending on the arrangement of the contractual relationships in the individual case, the authorized dealer may be entitled to a compensatory claim after the end of the contractual relationship analogously to the claim regulated in Section 89b German Commercial Code of commercial agents for the loss of clientele.
No uniform provision for the authorized dealer contract – advice helpful
In contrast to the commercial agent and to the commercial broker, an explicit legal provision is lacking for the authorized dealer contract as a special case of distribution law and similar to the franchise contract. While case law and literature have largely worked out the rights and obligations of the parties involved, they are not completely defined. This type of distribution contract is also complicated by the fact that it should also be taken into account in the design of European ordinances, particularly those regarding antitrust law and with regard to commercial agent law to be applied analogously if applicable. Before you sign a corresponding authorized dealer contract, you should seek advice from an experienced attorney. He will point out the possible pitfalls and draft the contract according to your ideas.
Agreements between an entrepreneur and an authorized dealer are – as a general rule agreements restricting competition and according to Art. 101 of the Treaty on the Functioning of the European Union – basically incompatible with the internal market. Their admissibility in individual cases must be reviewed on the basis of the applicable and relevant "group exemption regulations", for example, Regulation (EU) no. 330/2010. It should be noted that there are specific group exemption regulations for various industries, as is the case in the automotive sector.
If the authorized dealer is not only integrated into the sales organization of the entrepreneur, but also contractually obliged to surrender his customer file for use to the entrepreneur after departing, an analogous application of the provision for the compensatory commission of the commercial agent in Section 89b Commercial Code considering Directive 86/653/EEC, referred to as the Commercial Agent Directive, comes into question.
Important elements of an authorized dealer contract
The contract itself should define the rights and obligations of the parties in detail and contain explicit provisions with regard to all points relevant to the contractual relationship. In addition to those with regard to the court of jurisdiction, the applicable law and other general provisions these include in particular those
- regarding the contract territory (territorial protection),
- regarding the obligations of the authorized dealer, such as the obligation to promote sales, his obligation to report, the obligation of secrecy and regarding, also post-contractually, the non-competition clause, but also regarding compulsory insurance, the obligation to cooperate in the advertising campaigns of the entrepreneur, regarding minimum purchase and exclusive purchasing obligations, regarding the obligation to purchase original spare parts, etc.,
- regarding the obligations of the entrepreneur, such as his obligation to supply and to advertise, regarding return obligations, regarding the obligation to assist the authorized dealer in setting up his business operation, etc.,
- regarding the duration of contract and the consequences of an ordinary or extraordinary termination by one of the parties.
Your contact person for questions about commercial law and on distribution contracts, such as commercial agent, commission and authorized dealer contract, is Attorney Thomas Schwab (Certified Specialist for Commercial and Corporate Law). Please contact us by e-mail (email@example.com) or by phone (+49 69 / 76 75 77 80).
The two-page article deals with cross-border profit distribution among German corporations.