AI Review for Sales Agency Agreements

Learn how integrating AI contract review into your Sales Agency Agreements can improve your contract negotiation, ensuring clarity, precision, and mutual understanding.

What is a Sales Agency Agreement?

A Sales Agency Agreement (SAA), also sometimes called a "selling agency agreement," is a contract between a company and an agency the company hires to perform sales services. The agreement defines the rights and obligations of both parties.

SAAs are primarily designed for the appointment of an exclusive or non-exclusive sales agent that is authorized to negotiate and enter into contracts for the sale of goods or services on behalf of a principal in exchange for commissions on those sales.

Many companies have certain territories that are within a narrowly defined target market. The SAA may state that each sale needs to be prepared within a specific geographic area and/or may restrict the agent to selling only to a certain segment of customers. The agent may also be required by the SAA to commit to meeting a certain sales quota within a set amount of time.

When a sale happens, the sales agent gets a commission, which is a certain percentage of the sale total. This is only complete when the business gets paid from the sale or invoices their customer. The SAA may further state that the agent is in charge of defining the structure of the commission, including the formula for the commission.

Industry Application of Sales Agency Agreements

Sales Agency Agreements are applicable to industries dealing with goods and services. They are commonly used when a company wants to expand its sales reach by engaging external sales agents or agencies, rather than relying solely on its internal sales team.

Key Provisions to Consider in a Sales Agency Agreement

  1. Appointment of Agent: This article creates the sales agency relationship and sets forth any limitations or characteristics of the agent's authority, such as exclusivity, geographic territory, customer segment, etc.
  2. Sales Target: This provision explains any sales quotas or targets that the agent is expected to meet, as well as how and when those targets will be established (if not already explicitly stated in the SAA).
  3. Commissions: The article should explain how commissions are calculated, when they are to be paid, and what documentation is required to be maintained to receive commissions. Sometimes this provision is combined with language regarding the issuance, payment, and dispute of invoices by the parties.
  4. Trademarks Limited License: This language allows the agent to use the company's trademarks and service marks, as specified in the SAA, for the limited purpose of promoting and selling the goods or services pursuant to, and during the term of, the SAA.
  5. Promotional Materials: This article usually specifies that the company will provide the agent with sales materials, pamphlets, manuals, and marketing information, solely for the purpose of performing the SAA, and that such promotional materials will be returned to the company or destroyed upon SAA termination.
  6. Subcontracting: This article discusses whether or not the agent is allowed to subcontract its obligations under the SAA to a third party, and if so, under what circumstances.
  7. Termination: It is important to specify how and under what circumstances the contractual relationship can be terminated by the parties. This article may be divided into two parts, one that discusses the rights of the parties to terminate "for cause" and another part that addresses termination for a party's convenience.

In addition to these key provisions, a comprehensive Sales Agency Agreement should also include:

  1. Duties and Obligations of the Agent: This section should clearly outline the specific duties and responsibilities of the sales agent, such as promoting the products or services, providing customer service, maintaining records, and reporting to the company.
  2. Duties and Obligations of the Company: Similarly, the agreement should specify the company's responsibilities, such as providing product or service information, training the agent, and supplying necessary materials.
  3. Intellectual Property Rights: The agreement should clearly state that all intellectual property rights related to the products or services remain with the company, and that the agent's use of these rights is limited to the purpose of fulfilling the agreement.
  4. Confidentiality: Given that the agent will likely have access to sensitive business information, the agreement should include a confidentiality clause to protect this information from unauthorized disclosure.
  5. Indemnification: This provision typically requires each party to defend and hold the other harmless from any claims or damages arising from their own negligence or breach of the agreement.
  6. Governing Law and Dispute Resolution: The agreement should specify which state's or country's laws will govern the interpretation and enforcement of the agreement, and how any disputes will be resolved (e.g., through mediation, arbitration, or litigation).

Checklist for a Good Sales Agency Agreement

To ensure that your Sales Agency Agreement is effective, comprehensive, and legally sound, use this checklist:

  •  Clearly define the appointment and authority of the sales agent
  •  Specify any sales targets or quotas
  •  Detail the commission structure and payment terms
  •  Include a limited license for the use of trademarks and service marks
  •  Specify the provision and use of promotional materials
  •  Address subcontracting rights and limitations
  •  Include clear termination provisions, both for cause and for convenience
  •  Outline the duties and obligations of both the agent and the company
  •  Clarify intellectual property rights
  •  Include a confidentiality clause
  •  Address indemnification responsibilities
  •  Specify the governing law and dispute resolution methods
  •  Ensure the agreement is reviewed by legal counsel
  •  Have the agreement signed by authorized representatives of both parties

AI Contract Review for Sales Agency Agreements

To give you a sense for the benefits of leveraging legal contract review trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

These samples represent less than 5% of the pre-built, pre-trained Legal AI Contract Review solution for Sales Agency Agreements. If you’d like to see more, we invite you to book a demo.

APPOINTMENT OF AGENT

For: Seller

Alert: May be missing a clause stipulating the exclusivity of the sales agent.

Guidance: In an SAA, determining the agent's exclusivity status is essential, as it establishes the scope of the agent's representation and helps prevent potential conflicts or misunderstandings between the parties. By specifying whether the agent has exclusive rights to represent the principal in sales transactions or if the principal can engage multiple agents simultaneously, the principal can make informed decisions about their sales strategy.

For example, when expanding sales efforts into a new territory, defining the agent's exclusivity status allows the principal to decide if they want to rely solely on one agent or engage with multiple agents to maximize their market reach. This clarity in the agent's role and responsibilities influences the level of competition and cooperation among agents representing the principal.

While there are no specific statutes or laws that directly address the exclusivity status of sales agents in the U.S., general contract law principles and state-specific regulations governing agency relationships should be considered when drafting and implementing an SAA.

Additionally, parties should be aware of the implications of exclusivity or non-exclusivity and ensure compliance with applicable antitrust laws, such as the Sherman Antitrust Act, the Clayton Act, and state laws like the California Cartwright Act and the New York Donnelly Act. These laws aim to prevent anti-competitive practices and may impact the enforceability of an exclusive agency agreement if it results in an unreasonable restraint of trade or substantially lessens competition in the relevant market.

Sample Language:

APPOINTMENT OF AGENT

[Pattern 1]

1. Subject to the terms and conditions herein, SELLER hereby appoints AGENT <mark>as an exclusive AGENT</mark> for marketing and soliciting the orders for the Products during the Term only in [●●] (the “Territory”).

2. Unless expressly agreed to by the Parties in writing, AGENT shall not enter into another new agency agreement with any third party that sells or distributes the same or similar product with SELLER’s Product during the Term in the Territory. 

3. This Agreement does not restrict SELLER to sell or distribute the Product to customers in the Territory.

[Pattern 2]

1. Subject to the terms and conditions herein, SELLER hereby appoints AGENT as a non-exclusive AGENT for marketing and soliciting the orders for the Products during the Term only in [●●] (the “Territory”).

2. This Agreement does not restrict SELLER to sell or distribute the Product to customers in the Territory.

SALES TARGETS

For: Seller

Alert: May be missing an article regarding sales targets.

Guidance: In an SAA, it is essential to set clear sales targets for the sales agent to ensure a mutual understanding of performance expectations, fostering a more productive and successful business relationship.

For example, when a manufacturer engages a sales agent to promote and sell their product in a specific territory, defining sales targets helps maintain focus on achieving a particular level of sales, driving growth, and increasing revenue.

By explicitly outlining the sales targets, the responsibilities and commitments of the parties involved are adjusted, aligning expectations and working towards a shared goal. Relevant statutes or laws, such as the UCC in the U.S., should be considered to ensure compliance with applicable laws and regulations.

Moreover, the principal-agent relationship is governed by the fiduciary duty of the agent, which encompasses duties of loyalty, care, obedience, disclosure, and accounting. These duties safeguard the principal's interests in the sales process and ensure that the agent acts in the best interests of the principal.

Sample Language:

SALES TARGETS

[Pattern 1]

SELLER and AGENT shall review and set annual sales targets of the Products for each fiscal year of [SELLER/AGENT] after due consultation by the beginning of the Term and each Renewal Term.

[Pattern 2]

1. AGENT agrees to solicit the order for the Products and make the annual sales of not less than [●●] (the “Minimum Sales Target”). The Minimum Sales Target shall be decided by the Parties at the beginning of the Term or each Renewal Term.

2. In the event that AGENT fails to meet the Minimum Sales Target, SELLER may terminate this Agreement.

COMMISSIONS

For: Agent

Alert: May be missing an article regarding commissions.

Guidance: In SAAs, it is essential to define and clarify commission terms to ensure both parties have a clear understanding of their rights and obligations. This helps prevent potential disputes and misunderstandings, protecting the interests of both parties and ensuring appropriate compensation for sales efforts.

A well-defined commission structure benefits both parties by providing a clear framework for calculating and distributing commissions, motivating the sales agent to perform at their best, and leading to increased sales and revenue.

While there may not be specific statutes or laws directly addressing commission structures within SAAs, general contract law principles and relevant state laws governing the formation and enforcement of contracts should be considered. Additionally, industry-specific regulations or guidelines may impact the terms of the SAA, including commission structures.

One significant exception to the primary legal principle of the duty to pay commissions is the termination of the SAA. In many states, the agent may be entitled to receive post-termination commissions for sales made or substantially completed before the termination of the agreement. Furthermore, specific regulations and doctrines, such as the California Independent Wholesale Sales Representatives Contractual Relations Act, the New York Labor Law, and the Doctrine of Quantum Meruit, may apply to commissions in SAAs.

Sample Language:

COMMISSIONS

[Pattern 1]

1. The fee to be paid by SELLER to AGENT (the “Commission”) shall be a monthly sales commission of [●●]. 

2. SELLER shall provide the details of the Commission to AGENT based on all sales made on the Products during the previous calendar month, no later than [●●] days of each calendar month, for AGENT to review such details. 

3. AGENT shall promptly notify SELLER, in no event later than [●●] days after receipt of such details of the Commission, for any dispute on the amount of the Commission.

[Pattern 2]

1. The fee to be paid by SELLER to AGENT (the “Commission”) shall be a monthly sales commission in an amount equal to [●●] percent ([●●]%) of the sales proceeds paid by the customer for the Products during the period from the first day to the last day of each month. 

2. SELLER shall provide the details of the Commission to AGENT based on all sales made on the Products during the previous calendar month, no later than [●●] days of each calendar month, for AGENT to review such details. 

3. AGENT shall promptly notify SELLER, in no event later than [●●] days after receipt of such details of the Commission, for any dispute on the amount of the Commission.

Best Practices for Using Sales Agency Agreements

To make the most of your Sales Agency Agreements and ensure their effectiveness, follow these best practices:

  1. Choose the Right Agent: Conduct thorough due diligence when selecting a sales agent. Look for agents with a proven track record in your industry, a good reputation, and the necessary skills and resources to effectively promote your products or services.
  2. Be Clear and Specific: Clearly define the scope of the agent's authority and responsibilities. The more specific you are, the less room there is for misunderstandings or disputes.
  3. Set Realistic Targets: When setting sales targets or quotas, be realistic. Consider factors such as market conditions, competition, and the agent's resources and capabilities.
  4. Provide Training and Support: Provide your sales agent with the necessary training, information, and materials to effectively promote your products or services. Regular communication and support can help to ensure their success.
  5. Monitor Performance: Regularly monitor the performance of your sales agent against the agreed-upon targets and metrics. Address any issues or concerns promptly.
  6. Protect Your Intellectual Property: Be sure to include provisions in your agreement to protect your intellectual property, including trademarks, patents, and copyrights. Monitor the agent's use of your intellectual property to ensure it's consistent with your agreement.
  7. Plan for Termination: While no one enters into an agreement expecting it to end, it's important to plan for that possibility. Have clear provisions in your agreement for termination, both for cause and for convenience, and ensure that both parties understand their rights and obligations in the event of termination.

Conclusion

Sales Agency Agreements are essential tools for companies looking to expand their sales reach and market penetration through the use of external sales agents or agencies. By clearly defining the relationship between the company and the agent, including the scope of authority, commissions, targets, and termination provisions, these agreements provide a framework for an effective and mutually beneficial sales agency relationship.

To ensure the effectiveness of your Sales Agency Agreements, it's important to include comprehensive provisions that address the unique needs and risks of your specific industry and market. The agreement should be tailored to your particular circumstances, thoroughly reviewed by legal counsel, and actively managed throughout the relationship.

By following best practices for selecting, engaging, and managing sales agents under a well-drafted Sales Agency Agreement, companies can effectively expand their sales capabilities while minimizing legal and business risks.

Our guides are for informational purposes only. Such information is not legal advice and is not guaranteed to be correct, complete, or an up-to-date representation of LegalOn's legal content. Nor is the information tailored to the unique needs or objectives that accompany each transaction. For legal advice for a specific problem, you should consult an attorney licensed to practice law in the appropriate jurisdiction for each transaction.

Experience LegalOn in Action

Sign up to request free early access to LegalOn

Experience LegalOn Today

See how LegalOn can save you time, reduce legal risk, and free you from tedious work.