Agency Agreements (Sales Agency and Distribution) in Brazil
In this newsletter we summarize important aspects relative to Agency Agreements (Sales Agency and Distribution) in Brazil based on so-called rules of public order and of private order.
In accordance with applicable rules and aiming at mitigating risks, we recommend to (i) clearly define in the agreement aspects set forth in the applicable law and in its compliance, e.g., term and indemnity for change or termination of the agreement; (ii) ensure actual negotiation and adapt the agreement based on the parties’ decisions; (iii) agree on balanced contractual conditions, i.e., avoid unilaterally defined agreements (e.g., adhesion contracts) or clauses clearly protecting only one of the parties.
F/A´s Contracts team is available to assist on this matter.
These are agreements whereby a party (Agent), on a regular basis and without dependency on or employment relationship with the other party, agrees to promote on behalf of the other party (Principal), certain businesses within a defined area (territory). The main types of these agreements are Distribution and Sales Agency.
- Distribution. A type of agency whereby Seller is the manufacturer or licensed of products and/or services and the Buyer / Distributor buys products for resale and/or provide services to them related to the end customer. There is distribution when agent has availability (purchase) of the products to be traded. Distributor will pay the price of products to Seller, and will resell them to the end customer who, on its turn, will pay for the products and/or services. Seller has no direct relation with the end customer.
- Sales Agency. A type of agency whereby Sales Agent engage in business by promoting quotations and purchase orders to Principal (manufacturer or licensed of products and/or services), whether or not engaging in action relative to the business. The end customer pays for the products and/or services directly to Principal (not to the Sales Agent). Principal pays Sales Agent – usually a percentage of the sales (i.e., commission). Manufacturer/licensee has direct relationship with the end customer.
There are, however, mandatory rules that the parties must comply with and which limit their free will – public order. Typical examples include environmental, criminal, labor and tax laws.
In Brazil, Agency Agreements fall within the realm of mandatory law – public order.
There is a specific law (Law No. 4,886/65) which sets forth conditions for Sales Agency. Conversely, the general law (Brazilian Civil Code, articles 710 through 721) provides conditions for any agency arrangement (e.g., sales agency and distribution).
Note that our Courts have interpreted and decided that (i) the specific law applies to all agency agreements, including those of distribution, and (ii) the specific and general law contemplates minimum requirements the parties must comply with.
This aspect is particularly important because the legislation contemplates the essential contractual conditions which the parties must comply with such as termination and indemnification, territory and exclusivity, jurisdiction and amendments.
On the other hand, our Courts also acknowledge and confirm an essential principle of the Brazilian Civil Code, confirmed and improved by Law No. 13,874/2019 – the Free Will of the Parties. Based on this principle it is possible to support the parties such that they enjoy flexibility and the free will in bilateral agreements in which they are on equal and balanced conditions and have freely negotiated the agreement.
The keys are:
- Successful negotiation aiming at reasonable rights and obligations of the parties and guided by the legal requirements.
- If one of the parties needs specific conditions and is not open to negotiation, it becomes essential that the parties comply with the legal requirements.
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