Agency Franchise and Distribution

Whether you are looking to expand your existing business or start a new venture an Agency, Franchising or Distribution relationship can often be an attractive option. The key features of these three different business models are as follows:

Agency:

One person (the Principal) appoints another person (the Agent) to act on their behalf. The Agent is in a special position as they may be able to enter into binding commitments on behalf of the Principal. As a result an Agent is likely to owe particular duties of trust to the Principal and the Principal is likely to want to control the Agent's activities in the form of detailed contractual obligations. Depending on the nature of the Agency the Commercial Agents (Council Directive) Regulations 1993 may apply which will impose important obligations into the Agency relationship including the possibility of a termination payment to the Agent at the end of the Agency.

Franchise:

This model concerns the Owner of a Business who has developed a good reputation and an efficient system. Once this has been done, the Owner can allow (i.e. franchise) others to use and operate the Business' name and system. This typically works well with relatively simple businesses which can be easily replicated, for example fast food outlets, coffee shops or printing and copying outlets. In order to protect the Business' good name and confidential material the Owner will want very strict controls on what the Operator of the franchise can and cannot do.

Distribution:

In this case one person (typically a Manufacturer) agrees to allow another person (the Distributor) to sell its products. A Distributor is similar to an Agent except that the Distributor is acting on his own behalf and does not have the ability to enter into binding contracts on behalf of the Manufacturer. As a result the Distributor will buy the goods from the Manufacturer and will be responsible for finding buyers for the items purchased. To protect the Manufacturer's reputation it is often the case that a detailed agreement is entered into requiring the Distributor to maintain certain levels of service, stock and standards.

In respect of Agency, Franchising and Distribution there is always an element of one person having a close connection with the business of another person. In order to properly protect the interests of both parties it is usual for detailed contracts to be required in order to clearly spell out the rights and duties of each side. If you are looking at expanding your existing business and think that Agency, Franchising or Distribution may be right for you we can help guide you through the opportunities which are available under these different business models. Alternatively, if you are thinking of starting a new business, an Agency, Franchise or Distributorship could be an excellent opportunity and we can assist you in understanding the likely legal benefits and disadvantages.

For further information, please contact Simon Dakin or one of the team on 0115 9 100 200 or email enquiries@actons.co.uk.