Distribution and agency agreements: what to know before setting up a business in Italy
The agency and distribution agreements are previous legal instruments that businesses and entrepreneurs use with the purpose of selling their products and services in national and international markets.
Knowledge of these agreements and of what distinguishes one from the other is a fundamental aspect when setting up a business in Italy.
Both agreements require that a subject, namely distributor (distribution agreement) and the agent (agency agreements) arranges the selling of products or services in third territories as an independent entrepreneur, but in all cases as part of the sales network of the service provider or product manufacturer.
The main difference between the aforementioned agreements is how the sale takes place. In fact, on the one hand, the distributor operates as a hybrid figure between buyer and seller, and his/her profit is based on the price difference between purchase and sale prices. On the other hand, the agent – in return for a commission – promotes the sale of products or services between the manufacturer/ service provider and the clients.
Under previous circumstances, it is fundamental to proceed towards the legal scheme that may fit better with business organization and objectives. In this sense, VGS professionals confirm that agency and distribution agreements constitute nodal points of companies’ business. One main aspect VGS lawyers aim to point out is the legal difference between a distributor and an agent. Specifically, the agent operates as an intermediary between the service provider or product manufacturer and the client. Contrarily, the distributor operates in his/her own name and on his/her own behalf. Subsequently, the agent and distributor share a different type of business risk. While the agent risks nothing more than a loss of income, the distributor will have an actual loss in relation to the unsold.
VGS lawyers also point out that agency and distribution agreements may have a different impact on the producer business. In fact, while an agent is eligible for a legal indemnity connected to the termination of the agreement, the distributor has no right to a legal indemnity for the termination of the contract.
Distribution Agreement
According to Italian Law, the distribution agreement is an atypical contract. This means that it is not officially recognized by the Italian Civil Code. However, the Italian Law protects and gives legal certainty to all those agreements that are not exhaustively mentioned in the Civil Code.
- The distributor sets up independent selling and promotion activities, within a certain territory, under an exclusive license;
- The distributor operates in his/her own name and on his/her own behalf while purchasing the goods directly from the producer and selling them to clients;
- The distributor arranges further selling activities such as, warehousing, delivery of goods et cetera;
- Distributor has a full business risk linked with the unsold
Agency Agreement
The Italian Civil Code recognized the agency agreement in article 1742. In this sense, a commercial agent is an intermediary subject appointed on a continuous basis to promotion and sale activities in return for a commission.
- The agent operates as an intermediary between the service provider or product manufacturer. Sometimes the commercial agent might have the power of representing the producer;
- Agent’s activities are subject to higher control from the service provider or product manufacturer. In fact, once the contract has been closed, the sale is carried about the provider or manufacturer;
VGS lawyers have already assisted corporate and commercial clients on matters involving agency or distribution agreements. According to their experience, business activities have different objectives to reach in different territories, this means that there is no a better option between agency or distribution agreement. What matters is the objective of the business on a medium-long-term basis.
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