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The Key Differences Between Reseller Agreements and Agency Agreements

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If you are a business owner developing products, you may need the assistance of another business to sell these goods to the consumers directly. This will be necessary if you do not have a storefront or are the manufacturer of the products. Here, you will want to consider whether to engage the other business as a reseller or as your agent. It is crucial to decide on a correct arrangement before engaging the other company, as it will dictate how the other business must act when selling your goods. This article will look at the critical differences between reseller and agency agreements, so you can make the right choice for your business.

What is a Reseller Agreement?

A reseller agreement typically refers to an arrangement between someone supplying goods (often known as the wholesaler) and another party selling the goods to a third party or the general public (the reseller). Under a reseller agreement, the reseller agrees to sell the products on behalf of the wholesaler.

A few essential characteristics of a reseller is that they:

  • generally do not purchase the stock of the wholesaler;
  • often will not have anywhere to hold the stock;
  • find buyers interested in purchasing your products; and
  • will take a cut from any sales they make.

Often, reseller agreements will be drafted in a way so that the business relationships will not be exclusive. This means that the wholesaler can enter into multiple arrangements with different resellers.

For example, large companies such as Apple will want to engage numerous resellers throughout Australia.

What is an Agency Agreement?

An agency agreement is an agreement between a principal (you, the owner of the goods) and an agent (the business selling the goods on your behalf).

There are several well-known types of agency agreements, such as between real estate agents and homeowners looking to sell their properties.

This is more of an intimate relationship, and the connection between the principal and the agent is much closer than that of a wholesaler and reseller. Under an agency agreement, the agent has obligations to act in the principal’s best interests.

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The Key Differences

There are several key differences between these two types of agreements.

One of these main distinctions is how the parties interact. In an agency relationship, the agent can enter into contracts on behalf of the principal. However, a reseller cannot do so for a wholesaler. Further, the agent generally has greater obligations to the principal than the reseller has to the wholesaler.

Usually, an agency agreement will be exclusive, meaning that the principal will only have one agent. As explained above, this is different from a reseller type arrangement where a wholesaler might have several resellers.

If there are any disputes on the true nature of the relationship, courts will look at how the relationship looks in practice. This is as opposed to what each party calls the relationship. 

For example, a court will not necessarily accept that someone is an agent just because the other party calls that person their agent. A court may disregard the terms of a particular agreement that attempts to define the relationship if it believes the relationship to be different from what is written in the agreement.

This means that if you are manufacturing goods and you give your reseller authority to enter into contracts with your consumers, a court might consider that your ‘reseller’ is actually acting as your agent.

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Key Considerations of Each Agreement

Agency Agreements

Under an agency agreement, if an agent enters into a contract with a third party, the principal, whether they like it or not, will be bound by the actions of the agent. This is unless the agent has stepped outside the defined scope of their authority.

This could pose problems if, for example, your agent enters into a contract to sell one of your products, but you are out of stock.

If you cannot fulfil your contractual obligations, you may be legally responsible for compensating the third party.

Reseller Agreements

On the other hand, a wholesaler is generally not contractually bound by the actions of the reseller. This is because the contract for purchasing the goods is between the reseller and the customer. It is not between you and the customer. Effectively, a reseller agreement means that there is a degree of separation between you and the customer.  

However, this is not to say that you will not have obligations to the reseller under the agreement. 

Using the example above, if you have an obligation to notify the reseller of unavailability of your products and you failed to notify them, you may be in breach of the reseller agreement and need to pay compensation to the reseller.

Key Takeaways

There are several key differences between an agency agreement and a reseller agreement. Under an agency agreement, the agent enters into the contract with the customer on behalf of the principal. Whereas, under a reseller agreement, the contract is between the reseller and the customer. If you wish to have several people reselling your products, you will likely need a reseller agreement, rather than an agency agreement.

However, an agency agreement may be more beneficial for you if you want someone to make decisions on your behalf. You will also be protected, knowing the agent has to act in your best interests. If you have any questions about agency and reseller agreements, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

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