Under the agency agreement one party (agent) undertakes for remuneration to perform on the instruction of the other party (principal) legal and other actions on its own behalf but at the expense of the principal or on behalf and at the expense of the principal.
In transactions concluded by the agent on its own behalf and at the expense of the principal with a third party the agent acquires rights and incurs obligations even in cases when the principal is named in such transaction or entered into direct relations with the third party on the execution of the transaction.
In transactions concluded by the agent on behalf and at the expense of the principal with a third party the principal itself acquires rights and incurs obligations.
The key difference of the agency agreement from mandate and commission agreement is that in addition to execution of legal actions (ex. conclusions of transactions, filing of applications etc.) on the instruction of the principal the agent also performs other actions (ex. research, promotional activities, preparation and conducting of negotiations etc.).
In practice, it is important to distinguish agency agreement not only from mandate agreement and commission agreement but also from service agreements. This differentiation might become essential for tax purposes. You can find some practical examples in the last section below.
An agent is an independent contractor, and this feature distinguishes agents from employees entrusted with the promotion of sales in a particular area on behalf of the employer.
Distributors and agents are also different. Distributors typically buy and resell a principal’s products or services in their own name and behalf and at their own expense in a specified area or country, while agents procure sales contracts which are then concluded by the agent on behalf of the principal or on behalf of the agent, but always at the expense of the principal. Promotional and collaboration duties may be, however, quite similar.
It is worth noting that distribution agreements in Russia are not governed by law, and courts often construe distribution agreements as supply contracts with elements of agency agreements.
Some other features of the agency agreements are the following:
The agency agreement may specify an obligation of the principal not to conclude similar agency agreements with other agents acting in the territory defined by the agreement or refrain from similar activities in such territory.
The agency agreement may also specify obligation of the agent not to conclude with other principals similar agency agreements that shall be performed at the same territory as agreed in the agency agreement.
Please note that the terms of the agency agreement that stipulate that the agent shall be entitled to sell goods, execute works or render services exclusively for a specific category of buyers (customers) or exclusively to buyers (customers) located or living in the territory determined by the contract are null and void.