Distribution Agreement vs Agency Agreement
Last updated: February 2025
Quick Comparison
| Aspect | Distribution Agreement | Agency Agreement |
|---|---|---|
| Title to goods | Distributor takes title and resells | Agent never takes title; principal sells through agent |
| Risk | Distributor bears resale and credit risk | Principal retains risk of unsold stock |
| Termination rights | No statutory compensation; contract terms apply | Statutory compensation or indemnity under the Commercial Agents Regulations |
| Pricing control | Distributor sets resale price (RPM is prohibited) | Principal controls the sale price |
| Commission vs margin | Distributor profits from margin on resale | Agent earns commission from the principal |
What Is a Distribution Agreement?
A contract where a distributor buys products from a supplier and resells them in their own name and at their own risk.
Key Features
- • Distributor buys and resells; takes title to the goods
- • Distributor bears the commercial risk of resale
- • No statutory compensation on termination under UK law
- • Distributor sets their own resale price (subject to competition law)
Best For
- • Products requiring local stockholding and logistics
- • Markets where the supplier wants arms-length distribution
- • Arrangements where the supplier prefers certainty of sale
What Is a Agency Agreement?
A contract where an agent negotiates or concludes sales on behalf of a principal, without taking title to the goods.
Key Features
- • Agent acts on behalf of the principal; does not buy or own goods
- • Agent earns commission on sales generated
- • Commercial Agents Regulations 1993 provide statutory protections
- • Agent may be entitled to compensation or indemnity on termination
Best For
- • Markets where the principal wants control over pricing and brand
- • Situations where stock risk is best kept with the supplier
- • Engagements where regulatory compliance requires the principal to sell directly
When to Use a Distribution Agreement
Use a distribution agreement when you want to sell products through an independent third party who takes ownership and resale risk. This gives you revenue certainty and reduces your direct market exposure.
When to Use a Agency Agreement
Use an agency agreement when you want to maintain control over pricing, brand presentation, and customer relationships. Be aware of the mandatory termination compensation rights under the Commercial Agents Regulations 1993.
Which Does Your Business Need?
Choose distribution if you want clean, arms-length sales with revenue certainty. Choose agency if control over the customer relationship is more important. The key commercial consideration is often the mandatory compensation rights for agents on termination, which can be significant.
FAQ
What compensation is a commercial agent entitled to on termination?
Under the Commercial Agents (Council Directive) Regulations 1993, an agent is entitled to either compensation (based on the French model, potentially worth several years' commission) or an indemnity (capped at one year's average commission). The default in the UK is compensation unless the contract specifies indemnity.
Do the Commercial Agents Regulations still apply after Brexit?
Yes. The Regulations were retained in UK law after Brexit and continue to apply to commercial agents operating in Great Britain. They provide the same mandatory protections as before.
Generate the right contract instantly
AccountsOS generates UK-compliant contracts tailored to your needs. From £10/month.
Get Started FreeThis is guidance for UK businesses, not legal advice. Consult a solicitor for complex matters.
View all comparisons