BUSINESS ESSENTIALS: THE AGENT/RESELLER AGREEMENT

By James Forrest

In one of our first blog posts, I discussed the importance of advising each new client regarding having a proper set of contract templates in place for every third party that your business may have a relationship with (customers, vendors, employees, etc.). Having the right set of contracts in place to govern different relationships can make a huge ongoing difference for your businesses in the risk management department.

One such agreement is the Agent/Reseller Agreement, where your company will engage a third party to represent your company’s good and/or services in the marketplace—salespeople, marketers, resellers, etc.  From startups to even the most mature companies, many firms utilize third-party sellers and/or marketers to offset the need to hire full time people in these areas or simply open up new business channels with fresh new leads, even when they have advanced sales and marketing structures in-house.

Thus, agents and resellers can be a great source of new revenue for your company, but you must have a proper Agent/Reseller contract template in place with each agent you deploy to protect a variety of your company’s interests. First, your agreement should address exclusivity—does this particular agent have exclusive rights with regard to selling your product, such as a protected geographic territory or channel, such as online marketing?  Many companies refrain from giving this type of exclusivity away as this severely limits the company’s freedom to engage other third parties in the future.  If such an exclusivity is included, your company should insist on certain volume/minimum requirements – and if such requirements are not met, you should retain the freedom to terminate the agreement and free yourself from the exclusive obligation.  Conversely, does your company benefit from exclusivity (i.e., can the third party only represent your product/service as compared to your competitor’s products or services)?  Second, you should establish a clear term/timeline and geographic scope for the agreement.  An agent should have a clear directive—he or she will have the ability to market your product/service in the state of North Carolina for a period of one year, for example.

Next, the agreement should clearly outline the responsibilities of each party for the term of the agreement.  The contract should state which aspects of product or service delivery are the responsibility of the selling or marketing agent versus those of the company. The agreement should also detail the allocation of expenses, specifically, whether the company will pick up any of the agent’s expenses or treat them simply as the agent’s cost of doing business.

Any Agent/Reseller agreement should also protect the company with regard to its established brand – therefore often demanding professionalism, lawfulness, and high ethical conduct of its partners.  It simply shouldn’t “go without saying” that the relationship hinges upon the agent acting professionally, lawfully and ethically in all of its dealings.

Agent/Reseller agreements should also clearly outline the requirements for the payment of any fees or commissions pursuant to the arrangement (i.e., is there a flat fee or some sharing of revenues generated by the agent?).  If some portion of the compensation to the agent is based upon sales, it should be detailed in the contract as to how leads and referrals are memorialized so as to avoid confusion between the parties regarding when compensation is due to the agent.

Finally, while these are complex documents with seemingly infinite levels of customization tailored to the exact needs of each business, it’s very important that executives understand that Agent/Reseller agreements should also outline not only what agents can do, but what they can’t do on behalf of a company.  These agreements should have provisions where agents understand that they can’t warrant the product or service, nor can they make any claims about the product or service, outside of the directives stated in the contract.

A savvy agent/reseller can be a huge value add for a business.  A prudent entrepreneur should memorialize the relationship appropriately to preserve clarity regarding duties and compensation, and also to mitigate the company’s risk with respect to this key relationship.