The market for the trading and purchase and sale of goods and services is becoming increasingly dynamic and developed. As a result, various business models have emerged, among which exclusive agency is one of the prominent franchising and distribution models chosen by many major brands and enterprises. Below, NPLaw provides an overview of the legal regulations governing such issues.
The market for the trading and purchase and sale of goods and services is becoming increasingly dynamic and developed. As a result, various business models have emerged, among which exclusive agency is one of the prominent franchising and distribution models chosen by many major brands and enterprises. Below, NPLaw provides an overview of the legal regulations governing such issues.
I. Understanding of exclusive agency
1. What is an exclusive agency?
An exclusive agency is defined in Clause 2, Article 169 of the Law on Commerce 2005 as a form of agency whereby, within a specific geographical area, the principal appoints only one agency to purchase and sell or provide one or more specific types of goods or services.
Accordingly, it is regarded as a distribution model in which the principal enters into an agreement with only one agency to distribute its products or services in a defined geographical area.
2. Forms of exclusive agency
Currently, the law does not provide specific regulations on different forms of exclusive agency, but only refers generally to agency arrangements, of which exclusive agency is one recognized form.
II. Legal regulations on exclusive agency
1. Rights and obligations of the parties to the exclusive agency
When entering into the agency contract, the principal and the agency should clearly agree on their respective rights and obligations to ensure legal compliance and minimize the risk of future disputes.
Pursuant to Articles 172 and 173 of the Law on Commerce 2005, the principal has the following rights:
- To fix the purchase and selling price of goods or services applicable to customers;
- To fix the agency price;
- To request the agency to apply security measures in accordance with law;
- To request the agency to make payment or deliver goods in accordance with the agency contract;
- To inspect and supervise the agency’s execution of the contract.
The principal has the following obligations:
- To provide guidance, information, and necessary conditions for the agency to execute the contract;
- To take responsibility for the quality of goods sold or purchased through the agency, and the quality of services provided through the agency;
- To pay agency remuneration and other reasonable expenses to the agency;
- To return assets used by the agent as security (if any) upon termination of the agency contract;
- To take joint liability for the agent’s violations of law if such violations are partly attributable to the principal’s fault.
Pursuant to Articles 174 and 175 of the Law on Commerce 2005, the agency has the following rights:
- To enter into agency contracts with one or more principals, except where the law specifically provides that the agent may only enter into an agency contract with one principal for a particular type of goods or services;
- To request the principal to deliver goods or make payment in accordance with the agency contract, and to have security assets (if any) returned upon termination of the contract;
- To request the principal to provide guidance, information, and other relevant conditions necessary for contract execution;
- To receive agency remuneration and other lawful rights and benefits arising from agency activities.
The agency has the following obligations:
- To purchase and sell goods or provide services to customers at prices fixed by the principal;
- To properly execute agreements on the receipt and delivery of money and goods with the principal;
- To implement security measures for the execution of civil obligations as prescribed by law;
- To pay the principal proceeds from sales in the case of a selling agency; to deliver purchased goods in the case of a purchasing agency; and to pay service fees in the case of a service-providing agency;
- To preserve goods after receipt (for selling agency) or before delivery (for purchasing agency); to take joint liability for the quality of goods or services where damage arises due to the agent’s fault;
- To bear inspection and supervision by the principal and to report operational activities to the principal;
- To comply with legal provisions requiring that the agency enter into an agency contract with only one principal for a specific type of goods or services, where applicable.
Accordingly, the parties have the basic rights and obligations as outlined above and may agree on additional terms that do not contravene the law to suit their contractual objectives.
2. Regulations on exclusive agency contracts
To become the exclusive agency, the parties must enter into the exclusive agency contract. The law regulates agency contracts in Articles 168, 170, 171, 176, and 177 of the Law on Commerce 2005, as follows:
- The contract must be made in writing or in another form having equivalent legal validity, and must include agreed terms on agency remuneration, payment, and the agency term.
- Agency remuneration: In principle, agency remuneration is agreed upon by the parties in the contract and is paid to the agency in the form of commission or price difference.
- The agency is entitled to a commission calculated as a percentage of the purchase and selling price of goods or services if such prices are fixed by the principal.
- The agency is entitled to a price difference where the principal does not fix the purchase and selling price of goods or services applicable to customers, but only fixes the agency price for the agency. The price difference is determined as the difference between the customer price and the agency price fixed by the principal.
Where the parties do not agree on agency remuneration, the remuneration shall be determined based on:
- The actual remuneration previously paid by the parties;
- If such actual remuneration cannot be determined, the average remuneration applied to the same type of goods or services that the principal has paid to other agencies;
- If neither of the above methods applies, the customary remuneration applied to the same type of goods or services on the market.
Payment shall be made in installments after the agency completes the purchase and sale or provision of a certain quantity of goods or services, unless otherwise agreed.
Agency term: The agency contract may only be terminated after a reasonable period, but not earlier than sixty (60) days from the date on which one party gives written notice to the other of the termination, unless otherwise agreed.
III. Common questions regarding exclusive agency
1. How can one become the exclusive agency?
To become the exclusive distribution agency, the following conditions must be satisfied:
- Business registration as a household business or an enterprise;
- Execution of an exclusive distribution or exclusive agency contract with the principal (manufacturer or brand owner).
Depending on the principal’s requirements, the agency may also be required to meet additional conditions relating to capital, warehousing facilities, personnel, and other resources.
2. What are the characteristics of the exclusive agency?
The principal is not permitted to sell products to other agencies within the defined geographical area, except through the exclusive agency.
The exclusive distributor is likewise not permitted to distribute or sell products of competitors of the principal.
3. When entering into the exclusive agency arrangement with a foreign enterprise, should the agreement be titled the exclusive agency contract or the exclusive distribution contract?
Currently, Vietnamese law does not prescribe any specific naming requirement for contracts governing exclusive agency or exclusive distribution arrangements. Therefore, the title of the contract does not affect its legal validity and should be determined based on the specific circumstances and the intentions of the parties.
4. Is the principal jointly liable for violations of law committed by the exclusive agency?
Pursuant to Clause 5, Article 173 of the Law on Commerce 2005, the principal takes joint liability for violations of law committed by the exclusive agency if such violations are partly attributable to the principal’s fault.
Accordingly, the principal is required to take joint liability where the violation involves fault on its part.
IV. Legal consultancy and drafting services relating to exclusive agency
The above information is provided by NPLaw to address issues relating to exclusive agency. Should you have any further questions or require additional clarification, please contact NPLaw using the details below:
