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Both individuals, partnerships and companies may be commercial agents pursuant
to the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) as affirmed in the cases of:
- AMB Imballaggi Plastici Srl v Pacflex Ltd [1999] 2 All ER (Comm) 249
- Bell Electric Ltd v Aweco Appliances Systems GmbH [2002] EWHC 872
It is very common for individual agents to incorporate limited companies through which to run their agencies.
Who is the agent - the individual or the company?
The person who is appointed by the principal to sell its goods is the agent. If there is a written agency agreement governing the terms of the agency this should set out who the parties to the contract are, and it will therefore be possible to determine from the contract who the agent is.
If there is no written agreement, communications that took place at the start of the agency may assist in determining who (individual or company) was appointed as the agent. Sometimes the position is not altogether clear, and that leaves room for debate as to who the identity of the agent is.
Incorporation after the agency has commenced
Where an agent incorporates a limited company after the agency has commenced, the incorporation of the company does not in itself mean the agency is automatically assigned to the company. For the limited company to become the agent, it must have a contractual relationship with the principal and the parties must have intended that the company become the agent.
It is common to see agents set up a limited company after the agency has commenced, for the purposes of using it as a vehicle to receive commission payments from the principal. This is often done for tax reasons. Typically, the only thing which changes about the agency is where commissions are paid. Everything else remains the same. The individual will often assume he or she continues to be the agent, but the position may be unclear. In these circumstances it is often the case that the individual remains the agent and the company is nothing more than a vehicle through which commissions are paid, however, it is necessary to consider what was said and agreed between the parties at the time the company was incorporated to be able to determine the position.
Why does it matter who the agent is?
The identity of the agency matters because the Regulations entitle commercial agents to claim a termination payment under Regulation 17 when the agency terminates. That entitlement is usually lost where an agent terminates the agency himself save for where termination is justified:
- by circumstances attributable to the principal, or
- on grounds of the age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities.
It is point (ii) that illustrates the practical impact of the Regulations on agents who have set up a limited company and the company has become the agent. A company cannot get ill or old and thus this exception only applies to individual agents.
The problem here is obvious. If an individual agent subsequently incorporates a company that becomes the agent, they will not be entitled to compensation or an indemnity under Regulation 17 if the individual becomes too old or ill to continue the agency. This is often something that is not considered by individual agents upon incorporating a limited company through which to operate their agency business.
Practical steps?
Individuals should think very carefully about whether to incorporate their agency business, since incorporation may remove their right to protection under Regulation 17 upon retirement.
Whilst incorporation may not be fatal to claiming a Regulation 17 termination payment upon retirement, it is something agents should be mindful of and should seek legal advice as to its likely effect.
They should consider how they go about the incorporation, what to say to the principal, and what is to be recorded in writing about the effect of the incorporation. The less discussed between the parties and recorded in writing is likely to mean the identity of the agent is less clear.
If it is obvious the parties intended for the company to become the agent, it will be very difficult, if not impossible, for the individual to recover compensation or an indemnity under Regulation 17 upon retirement. However, if the identity of the agent is less clear, the individual may wish to assert an entitlement to a termination payment under Regulation 17 upon retirement in the hope that the principal will negotiate a compromise.
It is always advisable for an agent to seek legal advice if the agent is considering retirement so that the appropriate steps can be taken which protect the agent’s position.
Here to help
Our team of experts are ready to assist in all aspects of commercial agency law. We are always happy to have an initial no-obligation chat to help guide you in the right direction. Please do not hesitate to contact our Commercial Agency Team below.