Agency and distribution arrangements: The what’s, whys and wherefores (Part 1)

There are several reasons for doing so:

• Leveraging local knowledge: agents and distributors often have valuable local insights and established trade networks.
• Cost savings: by avoiding the need to set up an independent sales operation and hire a sales force, principals can save costs.
• Legal compliance: in certain jurisdictions, principals may be required to conduct business through local agents or distributors.

In this first of two articles on agency and distribution arrangements, we consider (a) the difference between an agent and a distributor in the UK, (b) the pros and cons of using an agent vs. distributer in the UK and (c) the different types of agency/distributor arrangements in the UK. In our next article, we will set out key considerations when appointing an agency/distributor in the UK.

It is worth noting that the labels “agent” and “distributor” are sometimes used interchangeably and can mean different things to different people. It is important to expressly state in an agreement what rights the agent or distributor is to have, as their legal position differs in relation to the principal.

The difference between an agent and a distributor
Generally speaking, in the UK, the key differences between an agent and a distributor are as follows:

Pros and cons of using an agent vs. distributor
Set out below are the general advantages and disadvantages of using agents and distributors, which may or may not apply depending on the wording of the agreement itself:

Types of agency/distribution agreements
Depending on the drafting of the specific contract, exclusive, non-exclusive or sole rights are generally understood to mean the following in the UK:

• Exclusive agreement: the principal grants exclusivity to the agent or distributor within a specific market or territory. The agent is the sole representative for the principal’s products or services in that area, whereas a distributor would have exclusive rights to sell the principal’s products within that area. The principal would not be able to appoint another agent or distributor in that area.
• Non-exclusive agreement: the agent represents, or the distributor distributes, the principal’s products in a specific market or territory, but the principal can also engage other agents/distributors or sell directly. 
• Sole agency agreement: similar to exclusive agency, but with a twist—the principal agrees not to appoint any other agents within the designated market except for themselves.

Comment
Both agency and distribution models have their trade-offs, and the right model will largely depend on the specific product, market, territory and a business’s goals. By understanding the distinctions and considering the above points, a business will be well-equipped to choose the most suitable approach to achieve success.

Contact our Corporate & Commercial team if you would like advice on agency and distribution arrangements.

[1]UK and EU competition rules prohibit anti-competitive agreements and abuse of a dominant position.
[2]Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (Commercial Agents Regulations)
[3]As above.
[4]UK and EU competition rules prohibit anti-competitive agreements and abuse of a dominant position.