Legal provisions on commercial agencies

Commercial agency is a wide business model in the Vietnamese market in recent years. To regulate agency relationships and ensure the parties’ rights and interests involved, Vietnamese commercial law provides a clear legal framework governing such activities. Thus, what exactly constitutes a commercial agency? What legal provisions apply to such a relationship? Let’s understand these issues in the article below with NPLaw. 

I. What is a commercial agency?

Under Article 166 of the Law on Commerce 2005, a commercial agency is defined as follows:

• A commercial agency is a commercial activity whereby the principal and the agent agree that the agent, in its own name, purchases or sells goods for the principal or provides services of the principal to customers for remuneration.

Whereas:  

• The principal is a trader who delivers goods to the agent for sale, provides funds for the agent to purchase goods, or authorizes the agent to perform services.
• The agent is a trader who receives goods or funds to conduct the agency activities or is authorized to provide services.

1.1. Main characteristics of the commercial agency

- Both parties must be traders

• Unlike some commercial relationships that may involve individuals, the commercial agency requires that both the principal and the agent hold trader status under the law.

- The agent acts in its own name to conduct commercial transactions with the third parties 

• When performing transactions with third parties, the agent enters into contracts in its own name to sell goods or provide services, and will have rights and obligations towards them. 

- Content and nature of the agency activities

• The scope of agency work includes entering and executing the agency contract between the principal and the agent, and performing sale or service contracts with third parties according to the principal’s requirements.
• The principal is the owner of the goods until they are sold to third parties. The agent only receives the goods and then continues to sell them to third parties. 

- Form of the agency contract

• Agency relationships must be formalized in writing under contracts or in another legally valid form (e.g., electronic contract).

- Object of the agency contract

• The object of the contract is the purchase or sale of goods, or provision of services performed by the agent for the principal’s benefits. 

1.2. Types of the commercial agency

Pursuant to Article 169 of the Law on Commerce 2005, there are several types of commercial agency, including:

• Distributor: The agent undertakes to purchase or sell an entire quantity of goods or provide a full range of services for the principal.
• Exclusive agency: The principal appoints only one agent to distribute certain goods or provide specific services within a defined geographic area.
• General agency: The agent establishes a system of sub-agents to distribute goods or services under the general agent’s name and management.
• Other agreed forms: Such as commission-based agencies or agencies guaranteeing payment, depending on the parties’ agreement.

II. Legal provisions governing commercial agency

2.1. Rights and obligations of the principal

Rights of the Principal (Article 172, Law on Commerce 2005)

- Unless otherwise agreed, the principal has the right to:

• Set the price of purchase and sale of goods, or services;
• Set the price of delivering objects to the agency;
• Request the agent to provide security in accordance with law;
• Request the agent to pay or delivery goods as agreed in the agency contract;
• Supervise and monitor the agent’s performance of the contract.

Obligations of the Principal (Article 173, Law on Commerce 2005)

- Unless otherwise agreed, the principal has the obligation to:

• Provide guidance, information, and necessary conditions for the agent to perform the contract;
• Be responsible for the quality of goods and services supplied through the agency;
• Pay remuneration and reasonable expenses;
• Return any assets provided by the agent for security upon termination of the contract (if any);
• Take joint liability for the agent’s violations if caused partly by the principal’s fault.

2.2. Rights and obligations of the agent

Rights of the Agent (Article 174, Law on Commerce 2005)

- Unless otherwise agreed, the agent has the right to:

• Enter agency contracts with multiple principals (except where exclusivity is stipulated by law or contract);
• Request the principal to delivery goods or funds as agreed, and receive the guaranteed assets upon termination of the agency contract (if any);
• Request the principal to provide guidance and necessary information to perform the contract;
• Determine selling prices in distributors;
• Receive remuneration and other lawful benefits.

Obligations of the Agent (Article 175, Law on Commerce 2005):

- Unless otherwise agreed, the agent has the obligation to:

• Purchase or sell goods and provide services at prices set by the principal;
• Comply with agreements on delivery of goods and funds with the principal;
• Take security measures if required by law;
• Store and preserve goods, and ensure service quality; and be responsible for poor quality goods and services due to its fault; 
• Allow the principal to inspect its operations and provide regular reports;
• Comply with exclusivity rules if any. 

2.3. Remuneration of the agency 

Under Clause 1, Article 171 of the Law on Commerce 2005, unless otherwise agreed, remuneration is paid to the agent in one of two forms:

• Commission: The agent receives commission under a percentage of the purchase and sale prices or service fees when the principal sets the transaction prices. 
• Price differential: The agent receives it under the differential between the agency price set by the principal and the transaction price with the customer when the principal does not fix the transaction prices.

Based on Clause 4, Article 171 of the Law on Commerce 2005, If there is no agreed calculation method, remuneration will be received as follows:

• The remuneration rate previously applied between the parties;
• The average rate for similar goods or services in the market; or
• The common rate applied on the market for comparable transactions.

III. Common questions on commercial agencies 

3.1. Duration of an agency agreement

- Under Article 177 of the Law on Commerce 2005, the duration may:

• Follow the parties’ agreement; or
• End after a reasonable period but no earlier than 60 days from the date written notice of termination is given if without the parties’ agreement.

3.2. What procedures need to be implemented to become a commercial agent for foreign traders operating in Vietnam?

According to Article 50 of Decree 69/2018/NĐ-CP, a commercial agency for foreign traders is a commercial intermediary activity, not a separate business line. Hence, traders only need to sign valid agency contracts without requiring to register a new business line.

3.3. Can Vietnamese traders act as agents to purchase and sell goods for foreign traders?

Based on Clause 1, Article 50 of Decree 69/2018/NĐ-CP, Vietnamese traders are permitted to act as agents for foreign traders except in relation to goods banned or suspended from import or export. For goods requiring a license, the agency agreement can only be signed after the trader has obtained the necessary permit from the competent Ministry or Authority.

IV. NPLaw’s legal advisory services for commercial agencies

Our legal support includes:

• Drafting and reviewing agency contracts and contracts with third parties;
• Advising on potential risks and issues during contract execution;
• Resolving disputes to protect clients’ legal rights and interests.