smallbusiness.co.uk: Helping your business think big

If you are looking to go into a business agreement with any company (whether overseas or in the UK), your first priority should be finding out as much background information as possible about them.

Ian McKillop, of Rickson Solicitors, suggests that you ask yourself the following questions.

What exactly will you be asked to do in return for the payments to be received? How much will you be paid? How much do you know about the company – is it a reputable one?

“The least risky option is to be appointed as the UK agent of the foreign company. In this case the relationship is likely to governed by the Commercial Agents (Council Directive) Regulations 1993 which implement a European Union directive and govern relations in Great Britain between commercial agents and their principals,” suggests McKillop.

The Regulations require both parties to act in good faith, and provide for the agent to receive remuneration customary to the line of business in question. In practice it is in the interests of both to spell out how the agent will be paid, and this raises a number of points.

Is the agent to be an exclusive agent either for the whole territory or some particular region? If the agent is given exclusive rights within a particular area then the principal is agreeing not to appoint another agent for the same goods for that area. This may encourage the agent to invest more time and effort into developing the market for the product as all sales in that area must go through his agency.

However the principal may be worried about being "locked in" to one agent and may insist on provisions to ensure that the agent will achieve certain volumes of sales as a condition of agreeing to an exclusive agency.

Whether or not the agency is exclusive the parties should be clear as to what sales will qualify for commission. If the agent undertakes marketing activities at his own expense then he is likely to insist that he receives commission on all sales made by the principal in the UK, including sales that have not been introduced by the client. The principal may argue that no commission should be paid to the agent unless the principal gets paid – that both parties should share the risk of a defaulting customer.

The parties should clarify whether the agent is to receive commission on orders from customers introduced by the agent during the term of the agreement but where delivery occurs after the end of the agency agreement – the agent may argue that his work has earned such a "post term commission" payment.

“There is no hard and fast rule on these issues – so the parties should discuss these points and make it clear what they have agreed. The Commercial Agents (Council Directive) Regulations 1993 referred to above tend to resolve these issues in the favour of the agent. The Regulations apply unless the parties agree that the contract is to be governed by the laws of another member state, and for that reason the client should not agree to any provisions that seek to apply another country’s law to the agreement.”

Similarly if the agency arrangement is to be covered by English law then it is better for the agreement to be written in English.

Perhaps the best advice is to write down in simple layman's terms what you want from the arrangement and to take these to a lawyer with experience of commercial matters.

Each fortnight, our newsletter ‘businessGO’ features small business tips, advice, hot links and breaking news. If you would like to see a question featured, or keep up to date with the latest business tips, sign up for businessGO by clicking here.