Legal Reset · Contract Structuring
Agency vs distribution: contracts and risk allocation
They're used as synonyms in everyday conversation, but on paper they're not. Signing a commercial agency agreement when the actual operation is distribution, or the other way around, creates obligations that neither party consciously agreed to.
Direct answer
To distinguish an agency relationship from distribution, review who sells, on whose behalf and who carries commercial risk. The agreement should describe actual operations, including inventory, collection and customer relationships. The document’s label alone is insufficient to assess its effects in a particular case or resolve inconsistencies with how the parties work.
They're used as synonyms in everyday conversation, but on paper they're not. Signing a commercial agency agreement when the actual operation is distribution, or the other way around, creates obligations that neither party consciously agreed to.
It all comes down to who loses if it doesn't sell
In distribution, the distributor buys the product and resells it on its own account: if it doesn't sell, the distributor is the one who loses. In a commercial agency agreement, the agent only intermediates in exchange for a commission and doesn't take on that risk. That difference, which sounds like accounting, is what later determines who owns the client base and what's owed at termination.
| Criteria | Distribution | Commercial agency |
|---|---|---|
| Buys the product | Yes | No |
| Takes on resale risk | Yes | No |
| Earns | Resale margin | Commission |
| Owns the client base, by default | The distributor | Depends on what's agreed with the principal |
When the paper says one thing and the operation does another
The most common mistake isn't choosing wrong: it's that the contract says "agency" while the operation runs like distribution, or the other way around. When there's a dispute, what gets analyzed is the reality of the relationship, not the label on the document. That's where compensation the company never budgeted for shows up.
How to avoid it
The question that settles everything is simple: who carries the risk that the product won't sell? Answering it honestly, and then drafting the agency or distribution agreement accordingly, avoids the conflict before it exists.
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