Two of the most common ways to create a national, international, and worldwide network for the trade of goods are International Agency and Distributorship. The agency is the relationship between a person known as the agent and the principle, who is another person, corporation, or government. As a simple definition, Distributorship is a relationship between two or more people operating as co-owners and sharing profits. For a strong and secure cooperation in this field, in the best possible way, it is necessary to conclude a comprehensive and detailed contract.
In this regard, Karimi & Associates Law Firm, with a team of qualified advisers, experts, and lawyers in various legal fields, including Business and Trade Law, by providing specialized legal advice and setting the terms of a contract, accompanies and supports your interests in concluding the Agency Contracts.
Now let’s have a deeper look at this subject and its regulations in Iran.
Let us have a deeper description of the agency for better understanding. “An agreed association established by agreement or by law wherein one party, the principal, appoints another party, the agent, to act in the principal’s name and on the person’s behalf in dealings with third parties.”
Main characteristics of Agency:
Awareness of the agency’s main characteristics is essential for starting this relationship. The first one is “independency”. Typically, an independent agent will not be subject to extensive control with regard to the manner in which that task is carried out but will be accountable to his principal for the outcomes of his work. The principal will not provide him with specific directions on how to carry out the assignment. Independence is demonstrated by the principal’s reliance on the agent’s unique abilities and expertise. In another word, the agent acts on a regular basis, but in general, the initiative is with them. Furthermore, the agent has the power to bind the principal; that is, if a reasonable person would believe the agent’s statements that he/she has the authority to enter into a contract on the principal’s behalf, then the principal will be bound by the agent’s acts.
Benefits and Risks of Agency Agreements
Simply put, when the principal is a small business owner, Agency Agreements can benefit the principal in a variety of ways. Few people possess all the specific knowledge required to run a business, so using a professional as your agent can help you save time and carry out business operations more effectively. Using an advertising agency is one of the most common examples. But are there any disadvantages and risks associated with those agreements, or is it all a matter of benefits?
Well, it cannot be without risks. What the risks could be?
The principal may also be held accountable for the actions committed because they have given the agent permission to act on their behalf. In essence, the principal could be held accountable if the agent engages in unethical or unlawful behavior while acting on behalf of the client.
Responsibilities of the Agent
One of the most important articles in these types of agreements is about the agent’s responsibilities. Sale promoting, not marketing outside the territory, not dealing in/being concerned with competing products/services, following the principal’s instructions, and informing the principal about complaints from customers are some of the responsibilities.
But there will be many conflicts in the practical stage and for having a better and more strong agreement, we recommend you ask for legal advice from a lawyer.
Responsibilities of the Principal
Now we know that what responsibilities the agent has, what about the principal? What kind of responsibilities could be impactful to have a strong agreement? If you are a principal, you must supply promotional literature, samples, and price lists, provide advice and assistance, refer inquiries within the territory (where applicable), notify acceptance or refusal of all notified operations, and pay commission. Again, writing a solid contract could be very useful in minimizing practical challenges.
Let’s start with the definition; “A contract by which, one party, typically the manufacturer of a product or a supplier, grants to another party, typically a distributor, the right to sell the product to third parties in a given territory and for a specified retribution.”
This definition leads us to notice the difference between agency and distributorship; In summery, while the distributor is regarded as an entrepreneur acting in his own name, the agent works on behalf of and at the risk of the supplier or manufacturer (the principal). Consequently, the agent is essentially a broker.
Main characteristics of Distributorship
If we want to talk about the main features of a distributorship, dealing with promotion and organization of distribution in assigned territory, getting a privileged position in the territory, and finding a special tie with the principal would be noticeable.
Different types of distributorship
The most important types of distributorship are the following:
· Exclusive Distributorship:
In this type of distributorship, the supplier cannot appoint another distributor in the same area. Another point concerns competition; the supplier cannot sell goods directly in competition with the distributor and the distributor must also develop the market for the supplier’s products.
· Sole Distributorship
Here, we have a supplier who appoints one distributor and, cannot appoint another distributor to deal with the same goods in the same area. The supplier is free to sell its products directly to the customers in competition with its own distributor.
· Selective Distributorship
First, the supplier establishes a network of distributors, second, none of the distributors have exclusive rights over the supplier’s goods and third, the supplier appoints additional distributors if they meet selective criteria.
· Non-exclusive Distributorship
In spite of the exclusive type, the provider has the freedom to appoint additional distributors and, they can directly sell their products to the customers.
General Obligations of Distributor
The distributor should promote sales. Furthermore, the supplier cannot seek purchasers outside the territory. They also have to keep sufficient stock of products and parts. And, finally, the distributor must conform to the supplier’s market policies-packaging.
General Obligations of Supplier
The supplier has the duty of supplying products, providing know-how and technical support, and training. They must also provide marketing material and warranty related to title and defects.
Agency Regulations in Iran
Now. The time has come to go to Iran. What is the agency process? What should we do? How long will it take?
All international businesses and business owners must appoint a representative or agent in Iran before importing and selling their goods there, according to the regulations of the Ministry of Industry, Mining, and Trade.
Step one is to enter into an Agency Contract with an Iranian person or company. Then, the Iranian side must apply for an “activity certificate” from the Iranian Guilds and Traders Center, which requires uploading certain documents on its website as indicated below:
- An application form in the provided format on the website.
- The original document of the agency contract in English and certified Persian translation of the contract, if its language is not English.
- The official letter of commitment from the foreign business to after-sales guarantees and replacement parts provided.
- Identity documents of an Iranian agency if he/she is an individual and registration documents, if it is a company.
- Tax file Number of the applicant in Taxation Affair Organisation. The document review will take 10 business days and after that, an “activity certificate” will be issued.
Activity Certificate Validity:
There is no straight period of time to this and it depends on the products. For example, the validity of the vehicles representation is at most 5 years, and for capital and durable goods is 3 years. The validity could be extended after its expiration.
After Sales Services:
It is mandatory for the Certificate holder of vehicle and durable goods to found a center of after-sales services. They should also take into account the Act of Consumers Right in the performance contract.
There is also the issue of whether there should be an exclusive representation agreement. Is it mandatory? The answer is no. There is no obligation to enter into an exclusive Agency Contract with the Iranian agent.
Lastly, there is an obligation must be taken following the termination or cancellation of the Agency Contract.
The certificate holder is obliged to inform it publically and report to the Iranian Center of Guilds and Traders.
If you are currently planning to set up and conclude an Agency Contract, you can contact Karimi & Associates Law Firm through the “contact us” section and receive specialized legal advice in this field from our team of professional advisers, experts, and lawyers.