ALP: I don’t need written agreements with my foreign agents and distributors, do I?

July 30, 2004

It’s better to have them, and they can be short and simple. As US companies sell goods and services into a new market, they often start with simple sales to or through a foreign party. This sometimes evolves into an informal agent or distributor arrangement, with no written agreement. Relationships are the key to good business, but contracts help to define the terms and minimize risk.

The laws of many countries give an undocumented agent or distributor arrangement a term of indefinite duration, and so cannot simply be canceled at will. In some places, without a written agreement to the contrary, the relationship will be deemed exclusive for the country involved. When the agent or distributor is terminated, severance payments can be required by law, much to the surprise of the US business, who thought there was no such understanding or mandate.

Documenting a foreign distribution relationship preempts disputes and raises the status of the arrangement. Legalese can be avoided, and letter formats work well. Through writing, expectations and issues are given thought and become matters of binding agreement. Despite this, there are mandatory laws in many countries that can override contractual understandings, so that it is important to get good foreign advice in documenting arrangements.