Using an Agent or Distributor in Spain

A Hot Tip about Agents, Sales Rep in Spain

Posted on: 23 Feb 2010

There are several forms of representation agreements in Spain. The most common are:

  • Distribution Agreements
  • Agency Agreements
  • Commission Agency Agreements

 

The law applicable to this type of contracts in Spain is similar to that in most other OECD countries.

Companies wishing to use distribution, franchising and agency arrangements need to ensure that the agreements are in accordance with European Union (EU) and member state national laws.

 

Council Directive 86/653/EEC establishes certain minimum standards of protection for self-employed commercial agents who sell or purchase goods on behalf of their principals, including the rights and obligations of the principal and its agent; the agent’s remuneration; and the conclusion and termination of an agency contract, including the notice to be given and indemnity or compensation to be paid to the agent. U.S. companies should be aware that the directive states that parties may not derogate certain requirements. Accordingly, the inclusion of a clause specifying an alternate body of law to be applied in the event of a dispute will likely be ruled invalid by European courts.

 

The European Commission’s Directorate General for Competition enforces legislation concerned with the effects of “vertical agreements” on competition in the internal market. Most U.S. exporters are small- and medium-sized companies and are therefore exempt from the regulations because their agreements likely would qualify as "agreements of minor importance," meaning they are considered incapable of affecting competition at the EU level but useful for cooperation between SMEs. Generally speaking, companies with fewer than 250 employees and an annual turnover of less than Euros 50 million (approx. USD 73 million) are considered small- and medium-sized undertakings. The EU has additionally indicated that agreements that affect less than 10 percent of a particular market are generally exempted as well (Commission Notice 2001/C 368/07).

 

Companies’ agents and distributors can take advantage of the European Ombudsman when victim of inefficient management by an EU institution or body. Complaints can be made to the European Ombudsman only by businesses and other bodies with registered offices in the EU.

 

Distribution Agreements

Distribution agreements in Spain have traditionally allowed the contracting parties broad discretion to decide on the form of contract. The ordinary clauses of a distribution contract may cover any subject to which the parties agree unless the clauses are contrary to the laws of Spain. Normally, the standard clauses include the markets or territory covered, volume of sales, conditions regarding the sale of goods, pricing, length of contract, advertising, financing, servicing, licensing of industrial property and conditions for termination, among others. The most common basic distribution agreements are:

  1. Commercial Concessions or Exclusive Distribution Agreements: The supplier agrees to supply its products to only one distributor in a specific territory and also not to sell those products directly to end users in the territory of the exclusive distributor.
  2. Sole Distribution Agreement: Similar to the above category. However, in this case the supplier reserves the right to supply certain products to end users in the territory.
  3. Authorized distribution agreements under the selective distribution system: The distributors are carefully selected according to their ability to handle technically complex products and to retain a certain image or brand name.

 

Models of distribution contracts and clauses can be obtained on-line from the bookstore of the International Chamber of Commerce, section “Model of Commercial Contracts”, The Spanish Institute of Foreign Trade also has a model in English.

 

Further counseling on international contracts can also be obtained from US Export Assistance Centers and local chambers of commerce.

 

Agency Agreements

Through an agency agreement, an individual or company called the agent, is bound to another (the principal) to advance the principal’s business, or to advance and conclude transactions on the principal’s behalf, without assuming the risk of such transactions. Beyond the basic obligations (to act loyally and in good faith), the agent must:

* Promote the products, and if authorized to do so, conclude the transactions;

* Inform the principal supplier of all matters relating to the agency, especially the financial aspects of all parties with whom there are pending transactions;

* Follow the principal's instructions and company policies (for example, prices, delivery dates, and procedure for claims);

* Receive any claims by third parties regarding defective merchandise in the merchant's name;

* Maintain independent accounting for each principal represented. Beyond the same basic obligations of loyalty and good faith, the principal supplier must:

* Provide books, catalogs, price lists and other needed literature;

* Make payments on time and as agreed;

* Give the agent the information required for the performance of the agency contract;

* Inform the agent with reasonable advance notice of the acceptance, refusal, or the lack of performance of each deal obtained by the agent. The agent has the power to request the accounting books of the principal.

 

Commission Agency Agreements

Under Commission Agency Agreements, an authorized agent (commission agent) participates in a commercial transaction or agreement on behalf of another (the principal). Commission agents may act in their own name or that of their principal. The main difference with an Agency Agreement is that Commission Agency Agreements involve occasional engagements. In addition, a commission agent facilitates the conclusion of an agreement but does not ultimately represent either party. The commission agent brings the parties together so that they can conclude an agreement, but is not party to that agreement, whereas an agent represents one of the parties. As Spain is part of the EU, U.S. companies benefit from greater transparency in agent and distributor commissions throughout Europe, uniform compensation plans and greater transparency in reporting revenues to local tax authorities.

 

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Posted: 23 February 2010

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