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German agency agreement

Agency Agreement

 

between the company ………………………. (name of the company and location of the headquarter)

 

– hereinafter referred to as company –

and

Mr. / Company ……………………………. (name of the sales representative, address)

 

– hereinafter referred to as commercial agent-

 
§ 1 Legal status of the commercial agent The commercial agent acts as district representative in order to represent the company in the district of…………………… The Company’s right to act in this district itself or through third parties remains unaffected. The exact delimitation of this district is given in the enclosed map attached to this contract (Annex …). Changes concerning the representative district require a supplement to this contract signed by both parties to be effective. The representation covers all products of the company that are currently part of their production and sales program. The Company is required to list in an appendix to this Agreement all customers with whom it had a continuing business relationship in the last 12 months prior to the commencement of the Agreement. The entire customer base existing in the Representation District at the time this Agreement will be taken over by the commercial agent for further support. 
§ 2 Obligations of the Commercial Agent The commercial agent has the task to mediate / conclude sales transactions in the name and for the account of the company in the assigned representative district. He has to take care of the interests of the company with the diligence of a proper businessman and to do his utmost to increase sales. He has to cultivate the business relations with the potential customers of the enterprise and process sales orders for them systematically. The sales representative is / is not entitled to collection.  The commercial agent shall promptly notify the company in case of any business brokerage / transaction and notify the company in case of initiation of a new business by sending copies of correspondence or file notes thereof. The sales representative also has to give the company the required updates once a month. At the request of the company, the commercial agent is obliged to provide specific information.    The commercial agent is obliged to keep a customer file or to set up an electronic customer file and always keep it up to date. The commercial agent is required to monitor the creditworthiness of existing or potential customers as much as possible and to support the company’s ability to pay. Doubts about the creditworthiness of an existing or potential customer must be reported to the company without delay. The commercial agent has no obligations against the credit report service. 

 

The commercial agent agrees to protect the company’s trade and business secrets and to keep the related documents and the commercial agent relationships not accessible to third parties. The commercial agent must keep confidential all those information acquired during the term of the contract, business transactions and internal, especially confidential matters, even after the end of the contract. The representation is personally transferred to the commercial agent. He is not entitled to transfer the commercial agency to a third party without the express consent of the company or to tacitly accept a commercial representation by a third party; however, he is entitled to employee auxiliary persons to carry out his commercial agency work. If the sole proprietorship of the commercial agent passes into other hands, this does not lead to an automatic transfer of the commercial agency contract to the new owner due to the lack of explicit consent of the representative.The same applies if the commercial agent, as contracting party of this agency agreement, converts his sole proprietorship into a company. In such cases, the contractual relationship will not automatically be transferred to the company without the express consent of the company owners.The commercial agent is entitled to sign agreements with subcontractors or travelling employers, whom he wishes to use as subcontractors to fulfill his contractual obligations. 
§ 3 Obligations of the Company The company must use its best endeavors to assist the commercial agent in carrying out its activities and to provide it with the necessary documentation and information at all times. In exercising its right to issue, the company must take into account the independent position of the commercial agent. The necessary information includes everything that is essential for the activity and remuneration claims of the commercial agent (e.g. changes in products, prices or terms of business, special advertising measures).  The company agrees to punctually inform the sales representative of any changes in the business, work overload, manufacturing or raw material difficulties etc., so that the sales representative can adapt to the respective circumstances with regard to his placement or conclusion.  The company must provide the sales representative with the documents required for the performance of his / her activity (samples, drawings, price lists, printed matter, terms of business and … etc.) free of charge, in each case supplementing and keeping them up to date. These documents remain property of the company, as far as they are used as it is not intended.The company always has to provide the commercial agent with the necessary news and information. The company must promptly notify the commercial agent in case of acceptance or rejection of a mediated business or in case of complete or partial failure of a concluded transaction and the reasons for the non-execution. The company must inform the commercial agent without delay if it can or will probably conclude business only to a much lesser extent than the sales representative could expect under normal circumstances. The legal consequences of the total or partial non-execution are determined under Section 6 of this agreement.Copies of the correspondence kept with district-related customers or interested parties must be sent to the sales representative immediately; the sales representative has to be immediately informed on facts regarding negotiations and planned transactions with district-related customers or prospects, which are conducted with the consent of the commercial agent or without his participation.According to paragraph 1, the commercial agent has to be punctually informed about a planned cooperation or mergers with other companies or intended sales or decommissioning of the company so that his business dispositions – in particular with regard to the exercise of his right of termination – will not be affected. 
§ 4 Transaction subject to commission The commercial agent has a commission entitlement for all transactions mediated / concluded by him for all district business transactions within the meaning of Section 87 (2) of the German Commercial Code HGB and for all transactions that occur without his direct involvement with third parties those have been customers for similar kinds of business. Prerequisite for the commission claim is that the business transaction takes place without regard to the time of the execution of the business by the entrepreneur during the existing agency contract. For trades arising after the termination of this Agreement, the Agent is entitled to commission only if he arranges, initiates or prepares the transaction so that the transaction is predominantly due to his activity and the business within a reasonable time is concluded after termination of the contractual relationship or if the offer of the customer to conclude the respective business before the end of the agency agreement has been received by the company. The commercial agent also does not acquire a commission claim for such transactions for which a predecessor can claim commissions in accordance with § 87 (3) HGB. 

If a transaction with a new customer is not attributable to the sole activity of the sales representative but has been co-created by other commercial agents, the commission claim is to be divided pro rata. This distribution depends in particular on the extent of the contribution made by the respective party to the transaction. Whether a division is to be made and in what proportion the commission is to be divided, is decided by the company in its sole discretion after consulting the representatives involved, taking into account the conflicting interests and avoiding legal recourses, unless the parties agree on the division of the commission.The commission claim of the commercial agent arises as unconditional claim, as soon and as far as the company has carried out the commissionable transactions. In the case of pre-delivery duty of the customer, the right to commission arises already if and as far as the customer satisfies his pre-payment obligation. 
§ 5 Commission The commission paid to the commercial agent for all commissionable transactions (referred to in Section 4 of this agreement) is …%. On this commission, the statutory VAT is added and owed, as the sales representative is subject to VAT.The commission calculation is based on the net invoice amount (invoice value excluding VAT), less all price reductions granted by the entrepreneur or used by the customer. Cash discounts are not deductible. The same applies to incidental costs (e.g. for freight, postage, customs, taxes etc.), unless the additional costs are billed separately to the customer.The commission rates and calculation bases for commission calculation mentioned in the preceding paragraphs can only be changed by way of contractual agreements. 
§ 6 Elimination of the Commission Claim In the event of the complete or partial non-execution of a concluded transaction, the right to claim the commission shall only lapse if and insofar as this is based on circumstances for which the entrepreneur is not responsible.The commission entitlement is also waived if it is established that the customer does not pay; it diminishes if the customer only partially performs. If a certain amount of money has already been paid, the sales representative has to repay the company.An obligation of the company to assert and enforce the claim for performance against the customer exists only if this measure offers the prospect of success. In other cases, the company is only required to enforce the claim on request of the commercial agent and if it appropriately participates in the costs of the proceedings. 
§ 7 Commission Settlement  The Company must settle the commissions due to the Agent for each calendar month, no later than the 10th of the following month. In the commission statement, those claims (net commission) which have arisen as unconditional claims until the end of the previous month as a result of the execution of the business are to be collected by the company. In the commission statement, advance payments made must be taken into account; In the commission statement the VAT deducted on the commissions have to be shown separately.The commission claim is due at the end of the billing month. 
§ 8 Costs of the Commercial Agent The commercial agent is entitled to reimbursement of the following costs:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
§ 9 Sickness/Holiday leave of the Commercial AgentIf in case of illness or for other reasons, the commercial agent is exempt from his business duties for more than one week, he shall inform the company without delay.  In the event of a sick-leave longer than one week, the entrepreneur is entitled to act on his own behalf or can be represented by other sales representative in the district of the commercial agent, unless the sales representative ensures the care of his customers by means of a suitable substitute. If the sick-leave of the commercial agent excess 4 weeks of permit, the activity of the company or third parties in the district must not result in a reduction of the commissions due to the commercial agent. Insofar as the commercial agent does not provide a suitable substitute, he must pay for the proven costs (salary, travel expenses etc.) of a substitute provided by the company; he must pay up to 50% of the commission claims incurred during this period during the interruption of the activity. However, this rule only applies to the period from the 5th week to the expiration of 6 months since the beginning of the sick-leave. At the end of the 6th month, a further discussion of the situation has to be considered.  The commercial agent is obliged to coordinate his holiday with the company at least 6 weeks before the start of your holiday season. The same applies with regard to other temporary interruptions of activity. 
§ 10 Competition Agreements The commercial agent will operate for the companies listed in the Appendix…..in the mentioned activities from the entry into force of this agreement. The commercial agent shall notify the company immediately in case any changes or addition to the product / delivery program of other companies will occur. If, by supplementing and / or changing the product / delivery program, these representatives become competitors to the company, the commercial agent is obliged to immediately take distances from the competitor. During the term of the contract, the commercial agent is obliged to refrain from any competition activity against the company. It is only entitled, with the express written consent of the company, to take over representations for other enterprises, to participate directly or indirectly in another companies or to support another company itself, provided that the other company manufactures and / or distributes products and / or other offers services that are the same or similar to those of the company.  If the commercial agent also wants to take over the representation of a company that does not manufacture or sell the same or similar products, he shall accordingly inform the company.The commercial agent hereby undertakes to refrain from any commercial activity within the contract territory within the meaning of Section 1 (1) of this agreement with regard to the products and services mentioned in Section 1 (3) for a competitor for a period of 2 years after termination of the contract. This obligation covers employment as well as self-employment (such as a sales representative or authorized dealer). The commercial agent is also prohibited from directly or indirectly participating in a competitor during the specified period.    For the period of validity of the post-contractual non-competition clause, the company pays the sales representative a competitive compensation, which is subsequently payable monthly. The compensation shall be 50% of the monthly remuneration, calculated on the basis of the average of the last 3 years – in the case of a shorter contract period during this period – in favor of the commercial agent. 
§ 11 Contract period, Termination The contractual relationship begins on …. The parties agree on in an indefinite period of time.The agreement may be signed by either party for a period of one month in the first year of the agreement, two months in the second year, three months in the third to fifth year, and six months thereafter at the end of a calendar month be terminated. The mutual right of termination for good cause remains unaffected.The termination must be presented in written form. Upon termination of the contract, the commercial agent must return the documents, the customer records and any other material provided by the company to him at the beginning or during the contractual relationship, within 14 days, unless otherwise used as intended, as well as all other for the maintenance and operation of the business necessary information.
§ 12 Other Provisions

 

All claims arising from this contract become time-barred twelve months after the claimant becomes aware of the alleged infringement. However, for a claim regarding Section 89b HGB, this twelve-month limitation period does not commence until the one-year period of application has expired (Section 89b (4) sentence 2) HGB). Excluded from the abovementioned regulations for shortening the limitation period are claims which may not be restricted by mandatory statutory provisions, e.g. of claims from liability for intentional acts under § 202 BGB.

Exclusive local jurisdiction for disputes arising out of this Agreement is the location of the Company.

 

Subsidiary agreements to this contract are not existent. Contractual supplements must be presented in written form in order to be valid and must be signed by both contracting parties. This formal requirement can be waived only by written agreement.

If this section of the contract does not contain a point that needs to be regulated, the statutory provisions of sections 84 et seq. HGB and the principles developed by the case law will apply.

 

The nullity of a provision of this contract does not lead to the nullity of the entire contract. The void provision shall be replaced by an agreement which comes closest to the purpose of the contract and the will of the contracting parties.

This contract concerns investments….that are integral parts of this contract.

This contract is made in duplicate. Each party has received a copy signed by the other party.

 

______________, the _________ ________________________________

(Place) (date) (signature of the representative company)

 

 

______________, the _________ ________________________________

(Place) (date) (signature of commercial agent

 

Note: An English translation is provided herein for mutual convenience. In the case of any dispute or discrepancy between the German and English texts, the German text shall be taken as most correct.

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Incoterms

EXW = Ex Works

The responsibility is in this case on the seller. This delivers as soon as the goods have been provided to the buyer on the production site (warehouse, factory, etc.) without the goods being cleared for export and loaded onto a vehicle. This clause therefore constitutes the minimum obligation for the seller, whereby the buyer must bear all the costs and risks associated with the transport of the goods from the seller’s premises.

FCA = Free Carrier

The duties of the seller go one step further than the EXW clause. Compared to the EXW, the seller undertakes to hand over the goods at a defined cost to a carrier decided by the buyer at an agreed place. From this point on, the buyer bears the transport costs as well as the risk of transportation damages.

FAS = Free Alongside Ship

FAS belong to Rules for Sea and Inland Waterway Transport clauses. The seller delivers when the goods are placed alongside the vessel named by the buyer in the agreed port of shipment. Here, the cost and risk transition takes place.

FOB= Free on board

FOB is also a pure sea freight clause. The contractual obligation of the seller ends when the goods have been loaded in the named port on the ship named by the buyer. From this point on, the buyer bears the additional transport costs as well as the risk that the goods will be damaged during transport.

CFR = Cost & Freight

The clause CFR applies exclusively to maritime transport. Here, the seller bears the freight costs to the contractually agreed port of destination. The transfer of risk takes place as in the FOB clause in the port of shipment or on board of the ship. Neither the seller nor the buyer has an obligation to conclude an insurance contract, but it is in the interest of the buyer to provide insurance coverage.

CIF = Cost, Insurance and Freight

See CFR. In the CIF clause, the seller must also take out maritime transport insurance for the buyer’s risk of loss or damage during transport. Here, the buyer should note that the seller is only obliged to take out insurance with minimum cover.

CPT = Carriage Paid To

CPT has replaced the C&F and CFR terms for all shipping modes outside of non-containerized marine freight. However, it is used for all other types of transport. “Freight-free” here means that the seller bears the transport costs to the agreed destination. The transport risks already pass to the buyer as soon as the goods are handed over by the seller to the first carrier or forwarding agent in the country of dispatch. (For insurance coverage see CFR).

CIP = Carriage and Insurance Paid To

In contrast to the CPT clause, the seller is additionally obliged to take out transport insurance at his expense in favor of the buyer. The minimum cover is sufficient. All other provisions are determined in accordance with the CPT clause.

DAT = Delivered at Terminal

DAT obliges the seller to provide the goods unloaded at a terminal designated by the buyer. A terminal can be a quay, a warehouse, a container depot or a road, rail or air freight terminal. In this case, the information obligation of the buyer is of particular importance, as the terminal or a specific point of the terminal should be as accurate as possible. Only when the goods are unloaded at this point, risk and costs are transferred to the buyer.

DAP = Delivered at Place

The clause DAP means that the seller has to make the goods to be unloaded at the place of destination. Again, it is particularly important that the buyer defines the place as accurately as possible, since costs and risks up to this point are borne by the seller.

DDP = Delivered, Duty paid

This clause, virtually the equivalent of the EXW clause, includes the maximum possible obligation for the seller. The latter is obliged to provide the goods to the buyer at the place specified in the purchase contract (in the importing country). Freight charges, import duties and ancillary charges are borne by the seller. A transport insurance obligation is not included in the clause for sellers or buyers.

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Commercial agent compensation

The commercial agent may have the right for a settlement claim at the end of the contractual agreement. This settlement represents the compensation for services provided by the commercial agent, which also have a beneficial effect on the entrepreneur after the contractual relationships has ended. The appropriate compensation therefore related to expected sales to the customers, which the sales representative either recruited himself or with whom he substantially intensified the business relationship. Also sub-dealers and employee-like commercial agents within the meaning of § 92a HGB can be entitled to compensation. Depending on the individual case, compensation claims can also be made by dealers, travel agencies, petrol station lessees and owners of lottery agencies. However, no settlement for compensation can be made, if the concerned person has been expressly commissioned only as commercial agent as secondary occupation (§ 92b HGB). The individual eligibility requirements are regulate in § 89b HGB and are briefly presented in the following overview.

Termination of the contractual agreement

A claim for compensation arises only after the termination of the contract, expiration of the deadline, death of the interested person or mutual termination agreement. It is always important to consider which was the party who wanted the termination of the contract and for which reasons this happened. If the one terminating the agreement is the sales representative, there is usually no claim that can be arisen, unless the conduct of the company he was working for has been the cause of such a termination, or if the sales representative can not reasonably be expected to continue his work because of his age (statutory retirement age) or illness. On the other hand, if the company does want to terminate the contractual relationships for important reasons concerning the culpable behavior of the sales representative, possible claims for compensation will lapse. The claims will also lapse in case of agreed termination of the contract and a third party enters into the contractual relationship replacing the commercial agent (successor clauses). In case of death of the commercial agent, the right for compensation will be transferred to the heirs.

Amount of the compensation claim

As a matter of fact, the common idea that the agent´s compensation claim would generally amount to an annual commission is wrong. The average annual commission from the last five years represents a maximum limit. The following conditions have to be taken into consideration when calculating the compensation claim:

New clients: Within the scope of forecasting, it must be determined what kind of significant economic advantage the business is likely to have after the termination of the contractual relationship from those business relationships that the sales representative has established or significantly intensified. The law assumes a significant increase in the turnover of the old customer by at least 100 %. Disputes about new customers can be restricted if, at the beginning of the contractual relationship, a list of existing customers with turnover is created.

Business connections with new customers: The customer relationships (new or old customers) must be of certain duration. Customers recruited by the sales representative who are not interested in placing further orders (so-called “one time customers”) are not relevant for a further development of the company. Connection with old customers could however be a problematic asset. A forecast for succession or replacement orders has to be created.

Benefits of the company: The benefit of continuing the business relationship with customers is the expected future profit of the company. A concrete period within which these profit possibilities must be taken into account does not name the law; decisive are the circumstances of the individual case. Even with a (partial) sale of the company, the right to compensation is not excluded in principle. The benefit of the company may be reflected in the share of the customer base included in the purchase price.

Commission losses of the commercial agent: The commission losses of the commercial agent are formerly an independent fact.  Since 2009, provision losses are to be considered only in the context of the fairness and equity.

Criteria ensuring fairness: Numerous other circumstances can influence the level of equalization in terms of fairness. These may include for instance, an entrepreneur-financed supplementary pension for the commercial agent, the economic and social situation of the contracting parties or the economic situation.

Maximum limit of compensation claims

The resulting crude adjustment shall be compared with the maximum amount of compensation. The maximum compensation amount must take into account both the total annual revenue of the sales representative from the last five contractual years, including agency fees for existing customers, administrative commissions, collection commissions and surplus commissions. If the equalization exceeds the maximum amount of compensation, the right shall be reduced to a maximum of one annual compensation. If the contractual relationship lasted less than five years, the average is decisive for the duration of the contractual relationship.

Enforcement of the compensation claims

The claim can be filed legally only within one year after the termination of the contractual relationship.

Exclusion of the compensation claim

The right for compensation applies only after the termination of the contract. Upon or after termination of the contract however, agreements on the payment and on the amount of compensation claims are possible.

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Commercial agent law in Germany

Characteristics of a commercial agent/sales representative

Sections 84 to 92c of the German Commercial Code (HGB-Handelsgesetzbuch) regulate the rights and obligations of the commercial agent and the company represented. According to section 84 HGB, a commercial agent is the person entitled in representing an independent trader, mediating with other entrepreneurs or finalizing businesses on its behalf.

It is considered self-employed, someone able to freely determine his own activities and working ours, carrying his own entrepreneurial risks (thus not an “employee”). So-called trade representatives exists in all conceivable industries and sectors, regardless of the type of legal form (for instance also as OHG, KG or GmbH). The actual features of the activity and the commercial agent´s contracts are decisive for the existence of a commercial representative business. Following, the characteristics that should be fulfilled in order to be considered a commercial representative:

  • Permanent contractual relationships with the represented company;
  • Mediation/ Conclusion of transactions and customer care in the name and on behalf of the represented company;
  • Self-employed (own business, entrepreneurial risks, trade taxation etc.);
  • Free organization of activities and free determination of working hours (freedom from instructions);
  • Payment of remuneration without deduction of taxes and social security contributions.

Definition of similar contractual relationships

Sales representative differs from others employed in the business market by acting in behalf of an external name and for a third party.

Travelling salesmen law

In contrast to the trade representative, travelling salesmen can not freely determine their working hours, travel itinerary, visits to customers and similar activities. He is an employee, and as employee he shall follow directions in behalf of the company he represents. As far as concerned the remuneration of a travelling salesman, he shall receive a fixed basic salary, generally supplemented by a success commission.

Commission Agent law

The commission agent differs from the commercial agent as he sells goods in his own name but for external parties (such us magazine sellers). The special provisions of section 383 et seq. HGB apply to this figure.

Authorized distributors and separate traders

Authorized distributors and separate traders typically buy goods on the basis of a permanent contract with manufacturer/supplier that he sells in his own name and on his own account.  Individual clauses in distributors ’contracts are similar to those on a commercial agent contracts. If the trader has similar rights and obligations of an authorized distributor, and he is integrated into the sales organization of the manufacturer or supplier, commercial agents’ rights may be partly applied.

Franchisee law

Between franchisee and franchisor there is a permanent contractual relationship with extensive mutual rights and obligations. As a rule, the franchisor provides the franchisee with a business concept for the distribution of goods or services, with a business name, and often offers other requirements for the Cooperate Identity for which the franchisee must pay a franchising fee. However, the franchisee is acting on its own name and on its own account, in contrast with a commercial agent.

Commercial Brokers law

A commercial broker shall enter into business on a non-commercial basis. He generally has not a permanent contractual relationship with a client, and is therefore also not obliged to constant customer support and business procuring. The proprietary regulations of Section 93 et seq. HGB apply to commercial brokers.

Commercial agent as tradesman

A commercial agent must register his trade in the municipality where its business is based. If his company does not require an established commercial enterprise, the commercial agent is considered a trader without being a businessman. An example of a correct business ´organization can be found on the site “IHK Information- Pflichtangaben auf Geschäftsbriefen”.

Special forms of a commercial agent

Following, various forms of sale representative´s contracts:

Side-line commercial agent:

According to Section 92b HGB (German Commercial Code), the latter is not primarily active as a commercial agent, but is also extended to other areas. Students, housewives or pensioners are often employed as commercial agents in side-line. Critical criteria for the establishment of a side-line are regularly the main activity of the commercial agent and this make the gross wage income. If this is partly derived from the activity as a commercial agent, and mainly from other occupations, a classification as a side-line commercial agent comes into question.

There are some legal features for the commercial agent as secondary profession. The most important differences are the shorter notice period of one month for the end of a calendar month, the possibility of agreeing a different termination period for both parties, and the possibility of contractually excluding the right to advance payment.

Moreover, the commercial agent in side-line is not entitled to any compensation claim.

Subagents and sale representatives:

In order to carry out his duties, a commercial agent may enter into a multi-level representation relationship with the company.  A distinction must be drawn between a truthful sub-agency and a false sub-agency.

In the case of a truthful sub-agency, the sub-representative shall be considered the subcontractor of the main representatives.  There is only a contractual relationship between the subcontractor and the principal representatives. The principal representative is thus obliged to pay the commissioner a commission. The main representatives shall receive commissions from the representing company, with the consequence of the compensation claim pursuant to §89b HGB, even if the sub-delegate has mediated or executed the transaction. The termination of the contractual relationship between the represented company and the principal agent does not automatically terminate the contractual relationship between the subagent and the principal representatives. A particular act of termination is necessary in order to release those compensatory claims of the subagent against the main representative.

On the other hand, in the case of a false subcontracting agent, there is a contractual relationship between the represented company and the subagent. In addition, a subordinate relationship between the principal representative and the subordinate is agreed. The subagent´s commission will be deducted from the main representatives.

With regard to compensation claims, special factors must be taken into account, depending on the remuneration of the main representatives, if the principal representative is involved in the successful mediation of the spurious subagent. Practically, this is done by means of the right of the main representative to retain a certain part as a separate remuneration (so-called “Provisionsspitze” in German) from the subordinate agent commission. Alternatively, under certain conditions, a shareholding may also be affected by the remuneration of the main representatives, if this participating, advertising activity of the main agent and the subagent´s activities are attributed to him.

Insurance and Building´s association representatives:

Insurance´s representatives are agents responsible for negotiating or concluding insurance contracts. They must fulfil all the fundamental requirements of a sales representative. A building association representative is a trade representative who arranges or finalizes buildings´ contracts. For the latter, the same legal regulations and peculiarities of the insurance representatives are applied. Section 92 of the German Commercial Code (HGB) provides certain provisions that are deviating from the Law on Sales Representative: the insurance and building´s society representatives are only entitled to commission for transaction that are attributable to their activity. This means that there is no district or customer protection´s commission as well as no commission for subsequent orders and reorders. In addition, the commission claim does not incur until the customer has paid the premium.

Agency Agreement:

Trade representative contracts can be verbally agreed. It is always recommendable to conclude a contract in written form in order to avoid unpleasant misunderstanding or future misleading evidences. The creation of a contract is always difficult: contract´s samples can be helpful for the contractual parties during the actual designation of a contract.

Different kinds of commercial representation:

Within the framework of the trade representation activity, there are several legal kinds of commercial agents, all following particular rights and obligations.

Area Sales Representatives

An area sales representative is a technically a trade agent that has been assigned to a specific area or customer´s group. This figure shall also be entitled to commissions, if transactions with people of his area or his group of customers are successfully concluded.

Sole Agency

An independent sales representative takes care of the most important customers’ protection. He shall make sure that the represented entrepreneur does not become active itself (direct business) or through other delegated representatives in an allocated areas. In accordance with the sole power to act in his district, he is entitled to both omission and the commission of any third party or entrepreneur who may have become active. However, in order to hold a position as the sole representative, a special provision is required in the contract between the commercial agent and the represented company. The allocation of a particular district is usually not enough. In order to determine the actual contractual relationship, the actual circumstances between the parties are relevant.

Multi-company or commercial trade representatives:

The multi-company representative is a commercial agent for several companies with different products. As a rule, they can not be trading products of competing companies, since otherwise the multi-company representative would be in breach of his obligation to protect the interests of the company (exception: explicit approval of the represented company). A sole representative may also be a multi-company representative.

The sole sale intermediary represents only one company, either on the basis of a contractual agreement or because it is not possible for it to represent other companies. In this case, the represented company usually has such a large number of products that the sales representative has no time to be active for other companies. In a contractual agreement, it should be noted that the commercial agent may only act for the contractual company, for the duration of the contractual relationship.

There is the legal possibility for the Federal Ministry of Justice to establish a lower limit for the entrepreneur´s contractual obligations to the social and economic security of the private representative, but so far, no use has been made.

Commission entitlement for a commercial agent:

The commercial agent is entitled to pay a commission for the concluded transactions. The amount of the commission (percentage, calculation basis) depends on the area of interest. Basically, the development of the commission entitlement also presupposes the execution of the transaction, by the delivery of goods or an advance payment. In addition, the claim may be omitted again, if the client is not going to pay. The entrepreneur however, has to charge his payment claim against the customer (exception: insolvency of the customer).

The amount of the commission is regularly determined as remuneration. The following calculation principles must be taken into account when determining the commission:

 

  • Discount deductions for the payment of the invoice do not reduce the commission of the commercial agent ( Section 87 b Paragraph 2 HGB).
  • Ancillary expenses such as freight, packaging, customs duties, taxes, insurance costs, etc. must not be deducted from the invoice amount (Section 87 b Paragraph 2 HGB). Ancillary costs may only be deducted during the calculation of the provisions, if this is contractually agreed with the commercial agent or these are invoiced separately according to the regulations with the customer.
  • Discounts are reduced by provisions if they were announced to the customer from the start. Subsequent discounts towards the customers normally do not reduce the provisions.
  • VAT is not to be taken into account in the calculation of the commission despite the fact that the invoice is separately designated. Unless otherwise agreed, the commission is therefore also to be paid from the value of the VAT.

The commission has to be paid monthly. The billing period can be extended to a maximum of three months. In order to verify the commission statement, the commercial agent can request information about the circumstances that are important for the commission claim. In special circumstances, he can also claim access to books and accounts.

Obligation of the commercial agents

The commercial agent shall endeavour to mediate or conclude transactions, thereby taking advantage of the entrepreneur´s interests. This includes advertising of new customers as well as sales maintenance or increase with already existing customers. He shall inform his contractual partner of all important matters such as negotiations and settlements.

Perception of interests

The commercial agent must consider interests of the company in his/her activities. This includes in particular customer supports after the conclusion of the contract. However, it may also be associated to the liquidity of customers.

Reporting obligations

The commercial agent shall immediately notify the company in case of any business dealings or transactions, breaches of contracts or other important circumstances. The scope and frequency of the reporting obligation depends on the individual need of the company and can be specified in the contract, in a monthly report, for instance.

Duty of confidentiality

The commercial agent may not exploit or divulge any business secrets of the company during or after the termination of the commercial agent contract. This also means that he is not allowed to use or distribute the customer ´s list. 

Prohibition on competition

The commercial agent is also subjected to a ban on competition, even if it is not been agreed during the contractual relationship. This restraint on competition is fundamental to legally protect the interests of the parties. Generally, the prohibition on competition is expressly regulated in written contracts.

Obligation of the Company

Information duties

The commercial agent must be informed by the trader of any important development in order to comply with his interests. These include for instance, terms of delivery, prices, changes in the product´s range or modification of individual products, operational discontinuation and sale of a business.  Furthermore, the employer shall notify the commercial agent, possible approval or rejection of transactions, or the non-execution of a concluded transaction. It should be carefully considered that the entrepreneur is free to decide whether to conclude a mediated transaction or not.

Transfer of documents

Nonetheless, the commercial agent shall provide the necessary documentation for the performance of his duties.  This obligation covers only those documents which are required in order to have a successful promotion of the products, such as price lists, samples, designs, advertising material, terms of business, special computer programs etc. Exempted are those objects (suitcases, computers, office supplies) considered only general auxiliary tools for the commercial business of the sale agent.

Commission Payment

The entrepreneur has to pay an agreed remuneration to the representative. Typically, the commercial agent receives also a commission/premium.  Generally, the entrepreneur settles the commission claim monthly, or at the latest, by the end of the following month. The accounting period can be extended by an agreement of a maximum of 3 months.

Prohibition of competition: restriction of competition during the term of the contract

In order to preserve a sense of interest, the commercial agent shall respect a ban on competition. Even without an expressed regulation, the sale agent can not promote or distribute competing products. However, the prohibition of competition can be more restricted in written contracts. Such clauses should have their admissibility legally checked.

Prohibition of competition after the end of the contract

Basically, there is a free competition after the termination of the commercial agreement. A “post-contractual restraint” needs to be previously agreed; it is not a result of the statutory obligation of a commercial agent. In Section 90a HGB (German Commercial Code), the preconditions of the non-competition clause are standardized by the contracting parties:

  • Agreement before the end of the contract;
  • A written form of the competition agreement as well as a certificate with the complete content of the agreement;
  • Agreement for a period of two years from the termination of the commercial contract;
  • Restriction only applies to the district or customer group assigned to the sales representative;
  • Extension only to products (services, insurance contracts, etc.) that refers to commercial agent for the mediation or business initiation;
  • Appropriate compensation, whereby the adequacy is on one hand based on the disadvantages of the commercial agent arising from the competition offense. On the other hand, the previous remuneration has to be taken into account.

The agreement of a post-contractual competition ´s understanding should be well calculated in each individual case from an entrepreneurial point of view.

Termination of the sale representatives‘ agreement

Both parties may terminate the sale´s representatives´ agreement, in compliance with the statutory time´s limitation.  The time limit is one month in the first year, two months in the second year, three months in the third and fourth year, six months from the fifth year, unless a different agreement has been reached. Longer periods may be agreed in the contract. In case of a justified termination for important reasons, the limit of time does not count anymore.

If a fixed-term contract is concluded, this automatically terminates with a deadline, obviously this happen only if the contractual parties have not agreed a clause on an automatic renewal. However, the contract can always be terminated by mutual agreement. In any case, the conclusion of the contract should be presented in written form, as a matter of evidential basis.

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German Commercial Law

Commercial law concerns all the relations between business partners. The most important legal regulation in Germany is the commercial code (Handelsgesetzbuch – HGB). In every business negotiations, HGB applies. Many questions of interpretation are also solved and regulated by the statute law, commercial practice and trade customs.

German commercial law has been heavily influenced by Italian and French commercial law. In some cases it is important to co-work with company law, intellectual property law, securities law and banking and stock exchange law codes.

Commercial Law Firm Profile

Horak Attorneys at law are here to assist you and support you on every kind of commercial law business. Our team is composed of lawyers with different professional backgrounds and this is our richness. Our services are tailored to fit your needs. Our basic principle consists in professional expertise, excellent education, continuous vocational training and experience. Our individual traits throughout all our activities are defined by specialisation, expert knowledge in different branches and of well as creativity. Early consultations in legal matters will help you avoid future possible legal disputes.

We complement one another having in mind one goal: your success. Are you looking for a reliable partner to put your plans and ideas into action? Contact us to have one of our lawyers confidentially advise you. Personal contact is very important for us – the choice of means of communication is up to you. Your lawyer assists you constantly at any point of your road to success. Your goal is our goal.

Right of representation

Our lawyers are authorized to represent all courts (all local, state and higher regional courts as well as all federal courts with the exception of the BGH (Higher Regional Court). We also assist our clients before the European Court of Human Rights (ECtHR), the European Court of First Instance (ECJ), the European Court of Justice (ECJ) and many other national and international authorities and arbitration tribunals.

Commercial law issues:

Distribution Contracts and Commercial Law

The distribution and commercial rights within Germany or the EU as well as the import and export of goods, especially from third countries such as China, India, Turkey, Indonesia but also the USA, have an important role to play.

We offer the following legal services in distribution law to our clients:

  • Planning, design, testing and optimization of distribution contracts and systems;
  • Terms and condition;
  • Terms of purchase and delivery
  • Import and export delivery contracts
  • Framework agreements
  • Examination of all contractual and non-contractual claims (such as injunctive relief claims, commission claims, compensation claims in accordance with § 89bHGB, information claims, anti-trust claims for damages;
  • Enforcement of rights in case of breach of contract or breach of law by one of the partner:
  • Litigation for international and national cases,
  • Representation in international arbitration,
  • Enforcement
  • Enforcement of rights in case of contractual infringement
  • Defense against unjustified claims
  • Tactical advice and representation.

Commercial and distribution agent

Section §§84 to 92c of the German Commercial Code (HGB-Handelsgesetzbuch) regulates the rights and obligations of the commercial agent and the company he represents. According to §84 HGB, a commercial agent is the person entitled in representing an independent trader, mediating with other entrepreneurs or finalizing businesses on its behalf.

It is considered self-employed, someone able to freely determine his own activities and working hours, carrying his own entrepreneurial risks (thus not an “employee”). So-called trade representatives exists in all conceivable industries and sectors, regardless of the type of legal form (for instance also as OHG, KG or GmbH). The actual features of the activity and the commercial agent´s contracts are decisive for the existence of a commercial representative business. Following, the characteristics that should be fulfilled in order to be considered a commercial representative:

  • Permanent contractual relationships with the represented company;
  • Mediation/ Conclusion of transactions and customer care in the name and on behalf of the represented company;
  • Self-employed (own business, entrepreneurial risks, trade taxation etc.);
  • Free organization of activities and free determination of working hours (freedom from instructions);
  • Payment of remuneration without deduction of taxes and social security contributions.

The settlement of the commission has to be done monthly. The billing period can be extended to a maximum of three months.

International Commercial Law

International business not only means import or export of goods to other countries, this also means entering the legal area of another country, and this is not to underestimate.

Anyone who wants to avoid unpleasant surprises should arrange all contracts in the most legal way possible in advance.

Post-contractual restraint  

Under the preconditions of §§ 74 et seq. HGB, a non-competition clause is to be found in many agreements and can also be agreed for a certain time after termination of the contractual relationship. The regulations are not only applicable to commercial employees, but are also directly applicable under § 110 GewO for all other employees. They are not directly applicable for authorized organ members. Apart from formal requirements, the non-competition clause requires a compensation to be granted and a maximum of two years since termination of employment (section 74a (1) sentence 3 HGB). In the event that the conditions have not been met, often voidness of the clauses or a right of choice of the obligated party is considered.

Sales representatives law

The HGB also applies without restriction to sales agents: this means that who is legally recognized as sales representative has the right to appeal to the HGB. According to § 1 Abs. 1 HGB is salesman, who operates a trade. Connection point is therefore the business enterprise. The entry in the commercial register is irrelevant. Business enterprise is any independent, externally recognizable activity that is designed for durability and profit and that is not a “free profession”. According to the definition of § 84 I 2 HGB a person is self-employed if he is essentially able to arrange his activities freely and to determine his working hours. Excluded are only those companies whose operation does not require a commercial enterprise set up in a commercial manner (see § 1 (2)). The exact limit is not definable. Corporations are by virtue of their legal form salesmen. On the other hand, the liberal professions, scientific and artistic activities as well as agriculture and forestry are excluded. In addition to this commercial concept, which has been included since 1.1.1900 since the German Commercial Code, the so-called “company concept” exists in the Civil Code. This distinguishes companies and consumers.

Company Names law

The name of a company is the name of the salesman according to the commercial register.

According to § 18 HGB, the business name shall be suited to designate the merchant and shall have a distinctive character. The business name shall not contain any information which is apt to be misleading with respect to business circumstances that are of material relevance for the market groups concerned. In proceedings before the court of registration, the aptness to mislead shall be taken into consideration only if is apparent.

Business Correspondence law

Depending on the kind of company, different laws apply.  For instance, limited liability companies (GmbH) required all business letters to be addressed to a specific recipient and must indicate the company´s legal form and registered office, the court of registration at the place of the company´s registered office and the number under which the company has been entered in the Commercial Register, the directors and, if the company has established a supervisors board and the supervisory board has a chairperson, the chairperson of the supervisory board together with his family name and at least one given name written out in full (pursuant § 35a GmbH https://www.gesetze-im-internet.de/englisch_gmbhg/englisch_gmbhg.html#p01959 ).

Similar provisions are included into §80 AktG for public limited companies, § 125a HGB for open trading companies (and limited partnerships) and § 37a HGB for other traders. Invoices must contain, (according to § 14 I 1a UStG) the tax number of the performing of the national tax number of the performing entrepreneur be specified. It concerns the national tax number and not the so-called sales tax- identification number (VAT ID). The latter can be voluntarily registered at the Federal Finance Office in Saarlouis and serves VAT-free business transactions within the EU.

Commercial Law for Start-Ups

We recommend basic consultations on the appropriate way to form a company. Who wants to enter the trade-world, requires a trading license. This is obtained after completing a so-called business opening form Gewerbeeröffnungsbogen of the Public Order Office of the municipality or city in which the company is located. Then the local IHK communicate to the enforcement of the (compulsory) membership and announces the payment of the contributions. Anyone who employs staff must also join a professional association (BG). This usually addresses itself to the person concerned. In addition, the IHK, the municipalities, other authorities and many other institutions can offer funding opportunities for the concrete enterprise.

Transport law, Spedition law, and Warehousing law

The transport law includes the following areas: Land Freight Law, Air Freight Law, Rail Freight Law and Inland Navigation Law, Freight Forwarding, Warehousing and Logistics Law, Maritime Law. Also included are customs law, insurance law and international private law. In addition, general damage and insurance law as well as contract drafting and designation constitute the practically essential focus in the light of the aforementioned legal framework.