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Businesses use contracts in their commercial dealings to trust that their partners uphold the terms of an agreement or transaction. Contracts create trust as they are legally binding, provided they meet all the legal elements of an enforceable contract. There are many different types of contracts, and they all have different features. For example, standard business contracts include a reseller agreement and an agency agreement. This article will explain what these contracts are and the difference between them.

What Is a Reseller Agreement?

A reseller agreement is a contract that you enter into with a reseller. A reseller is someone who buys your products and then resells them at an increased price. The reseller takes on the risk of selling your products to the market. Businesses use resellers as it guarantees that any products they make are sold. In addition, as a reseller is buying your products in bulk, they will usually receive a discount from your business. 

What Is an Agency Agreement?

As the name suggests, an agency agreement is a contract that you enter into with an agent. When you enter into an agency agreement, you become the principal. An agency relationship is when one agent represents a principal to conduct a particular matter or transaction. Agents act on behalf of their principal and may be bound to fiduciary duties.

A typical example of an agent-principal relationship is a homeowner and a real estate agent. In this relationship, the real estate agent can make certain decisions on behalf of the homeowner.

An agency agreement will outline the extent of an agent’s decision-making power.

Differences Between a Reseller Agreement and an Agency Agreement

Relationship Between Parties

The main difference between a reseller agreement and an agency agreement is the relationship between the parties. 

A reseller buys goods off a business with the intention of selling them. Once the reseller has bought the goods, they are under no duties other than the reseller agreement. 

However, an agent does not buy goods off their principal. Instead, they represent their principal so that they can either complete a transaction or arrangement.

Exclusivity

Another difference between a reseller agreement and an agency agreement is exclusivity. An agent may have the exclusive right to represent their principal as laid out in the relevant agreement.

For example, a sports star will usually be only represented by one agent or one agency company. This is usually because there needs to be trust in an agent-principal relationship and this can be hard to build with more than one person.

Agency agreements are also usually exclusive as having more than one agent may lead to contradictory decisions. Such an arrangement could be disastrous for the principal’s interests.

On the other hand, reseller agreements are usually not exclusive. This is because the resellers need to be able to sell other goods. In rare circumstances, you may be able to convince your resellers to include an exclusivity clause. However, this is still likely to relate to any direct competitors of your business rather than across the board.

Fiduciary Duties

An agent has certain fiduciary duties that a reseller does not. Fiduciary duties are certain obligations that a person must follow due to them holding a legal or ethical relationship of trust over another person or entity. For example, an agent must act in good faith to their principal and must act honestly. They must also avoid all conflicts of interest. 

However, a reseller is not bound to any requirements other than those that have been outlined in the reseller agreement.

Key Takeaways

Both reseller and agency agreements have their place in commercial dealings. It is important that you choose the correct one for your business. For example, if you are trying to sell goods consistently to increase cash flow, then a reseller agreement may be best. This is because a reseller agreement will provide a steady stream of income. However, if you are looking to sell your business, then you should contract with an agent. Your agent will be bound to any terms of the agreement, as well as the relevant fiduciary duties. 

For legal assistance with managing your contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I remove fiduciary duties from an agent-principal relationship?

If you contract in this way, you will not have an agent-principal relationship, and you will not receive the benefits of protection that come with it.

What happens if a reseller cannot sell my products on?

You are under no obligation to take the products back, and it is up to the reseller to find a solution.

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