The main difference between agency transactions is that they involve a third participant—the agent. He becomes an intermediary between the seller and the buyer and helps them complete the transaction. Although the appearance of an intermediary complicates accounting, you should not abandon agency agreements - they are beneficial for both parties.
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Pros for the agent himself
- Reducing the cost of purchasing goods. By concluding an agency agreement, you receive the goods from the supplier for free. You will transfer the proceeds from sales to the supplier, and he will pay you a commission.
- Reducing the tax burden on the simplified tax system. Under an agency agreement, income is only your remuneration, and not all the money that went through the account. For example, you place an advertisement - the client pays money, most of which you transfer to Yandex. It is not profitable to pay tax on the entire amount, so enter into an agency agreement and take into account only your remuneration in taxes.
In what cases can an agency agreement be concluded?
An individual or legal entity acting as a Principal does not keep a time sheet for the Individual Agent and should not require him to comply with the working hours, because under an agency agreement, no labor relations arise between the parties. The individual must be fully capable.
The main difference between an agency agreement and similar agreements is that the Agent has the right to perform a wider range of actions than other intermediaries. It is advantageous to formalize it if there is a need to transfer to an intermediary the authority to perform legally significant as well as other actions (transfer of goods, search for suppliers, attracting clients, performing work, representing interests, etc.).
An agency agreement with an individual, a sample of which you can find below, is advisable to conclude if:
- the work is not permanent;
- there is a need to hire a person who lives in another region;
- The agent is not required to be present at the workplace every day and adhere to the work schedule.
The execution of this document is an alternative to including an employee in the organization’s staff. It should be noted that such an agreement usually involves long-term cooperation. If an organization or individual entrepreneur needs to perform a one-time transaction by an intermediary, it is better to sign a commission or commission agreement.
Three people are involved in the agency agreement
- Principal - hires an agent and instructs him to sell or buy a product or service.
- Agent - carries out the instructions of the principal as an intermediary between the seller and the buyer.
- Seller or buyer - depends on whether the agent is buying or selling.
It's easier to understand with examples.
You have an online store. To deliver the goods, you contact the courier service. In this situation, you, the principal, hire an agent - a courier who delivers the goods to the buyer and receives payment.
You become a principal, even when receiving payment using electronic money (Yandex.Money, PayPal, etc.). After all, the buyer does not pay you directly; the intermediary - the payment system - intervenes in the matter again.
Sometimes the principal instructs the agent not to sell, but to buy the goods. For example, you, the principal, hire a realtor - agent to buy an apartment. This situation also applies to agency transactions.
Contents of a standard agency agreement
Typically, a contract begins with an indication of the place where the agreement is concluded and who its subjects are - information about the agent and the principal. This is followed by a clause stating that the principal instructs, and the agent undertakes, the duties to act on his behalf and at his expense. The latter is not an agency fee, but belongs to the area of entertainment expenses, and this is how it is reflected in the accounting documentation.
An important circumstance is to indicate which party has rights and obligations for all those transactions that will be concluded by the agent due to the performance of his duties under the agency agreement. Usually they write that they arise from the principal. It is quite possible that such a brief formulation has its own explanations, but here it would be useful to note the limitations. For example, indicate that if this does not violate the rights of the principal and contradict his material interests.
The section describing the rights and obligations of the parties simply lists the main types of intermediary services that his agent can perform on behalf of the principal. For example, enter into purchase and sale transactions or represent interests in courts. The list of activities is unlimited. You can add various analytical or physical actions to it.
Each party has the right to indicate what the other must do at the time of termination of the contract. It would not be amiss to establish the agent’s obligation to return, within a certain period of time, all those powers of attorney that were issued to him in the course of fulfilling his contractual obligations.
The agent’s remuneration section specifies the specific amount he will receive for providing his services, the payment procedure and the method of transfer. The agreement can be concluded for an indefinite period, then it is necessary to indicate what amount and in what period the principal undertakes to transfer. Immediately following these conditions is a section on the agent's reports, and its specifics depend on the nature of the tasks that the principal assigns to his agent. Payment and reporting can be closely linked. The principal has the right to tie payment for the agent’s services not only to what he did, but also to how he reported on the work done.
All other sections of the agreement are standard for legal business transactions in the Russian Federation. What is important here is primarily how the principal intends to terminate the relationship with the agent if he considers it necessary to do so. The contract law of the Russian Federation does not impose serious restrictions on principals, because in essence the activities of an agent are closer to the provision of services. It will be better for everyone that at the time of termination of the contract the parties do not owe each other any material funds. Therefore, business traditions require that upon termination of an agency agreement, the principal must pay the agent for what he has already done for him. In the document itself, this is reflected by the clause that the principal reserves the right to terminate the relationship at any time by sending appropriate written notice.
The agent works on his own behalf or on behalf of the principal
The agent carries out the assignment in two ways - on his own behalf or on behalf of the principal.
In the first case, the agent introduces himself by his own name and draws up all documents in his name, as if there were no principal at all. The client may not even know that he is working with an intermediary, and will turn to the agent with questions and complaints.
In the second case, the agent draws up all documents in the name of the principal and, as an independent entrepreneur, does not participate in the transaction. This is equivalent to working under a power of attorney, and the agent has no obligations to the client.
Agency agreement for the provision of intermediary services sample form
In Russian civil law, there are several types of agreement for the provision of intermediary services, such as agency, commission or assignment; in this article we will consider an agency agreement.
Agency
When carrying out business activities, each person strives to minimize costs.
Other mediation providers can play a big role in this. For example, to carry out market analysis, conduct marketing research or an advertising campaign, it is more profitable for a business entity to resort to intermediary services without increasing the number of its own employees and, accordingly, incurring additional costs.
An agency agreement, combining some principles of commission and assignment agreements, is the most universal for such purposes.
Under such an agreement, the agent party assumes the obligation to carry out any actions (not necessarily only legal ones) on behalf of the other party.
This agreement is necessarily paid and involves some kind of remuneration on the part of the customer to the person providing intermediary services.
Acting in the interests of the guarantor, the contractor provides services to the latter, and although the contract is concluded by the intermediary, the customer is considered the beneficiary.
Based on the concluded agreement, the agent, on behalf of the interested party, takes any action on his own behalf (in this case, the burden of expenses falls on this person) or at the expense and on behalf of the person who ordered the service, while receiving remuneration.
Legal nature of the agency agreement for the provision of intermediary services
When providing agency services, an agreement is drawn up.
The agreement reflects:
- name of agent and customer;
- date of signing;
- subject of the contract (services, actions required from the agent);
- the direct role of the agent (on whose behalf the agent acts);
- amount of remuneration;
- signatures and seals of the parties.
Both the agent and the customer, on the basis of the agreement, may be limited in concluding similar agreements with other persons to perform the same actions.
The agent's remuneration is not always specified in the contract; in such cases it is calculated based on analogy, taking into account business customs.
The agent, unless prohibited by the contract, may enter into a subagency agreement, transferring, partially or in full, the performance of his duties, but remains fully responsible to the customer.
The contract may be terminated due to:
- Refusal to perform it by either party if the contract does not have an expiration date.
- The agent's death, incapacity or inability to locate him.
- In case of bankruptcy of the agent.
In practice, this type of agreement is most common among entrepreneurs in need of intermediary services.
Below is a standard form and a sample agency agreement for the provision of intermediary services, a version of which can be downloaded for free.
The agent receives compensation from the principal
The agent's income is the remuneration he receives from the principal. There are a lot of options for calculating it, from simple to complicated. Therefore, we recommend that you pay attention to this clause in the contract. Here are some ways to determine your reward:
- A specific amount per transaction. This is a reliable option since you know the amount of the reward in advance. But this is not always beneficial for the agent, since he will not be able to earn more than the agreed amount.
- Percentage of the transaction. This is more profitable for the agent and motivates him to sell more. For example, according to the terms of the contract, the agent will receive 10% from each coffee maker sold. If an agent sells 5 coffee makers for 10,000 rubles, his revenue will be 5,000 rubles.
- A markup on the price of a product or service. The principal sets the minimum price at which the agent can sell the goods, but does not limit it to the maximum. This method motivates the agent to sell at a higher price. For example, the principal instructs to sell a coffee maker for at least 10,000 rubles. The agent sets his price - 12,000 rubles. After selling the coffee maker, he will transfer 10,000 to the principal and keep 2,000 rubles for himself. This will be his reward.
In addition to the amount of remuneration, the agent and the principal agree on the timing of its payment. There are also several options here:
- The principal pays the agent before the work is completed.
- The agent transfers the proceeds from sales minus his remuneration to the principal.
- The principal pays the agent after the contract is executed. If no deadline is specified in the contract, the principal pays the remuneration within a week after receiving the report from the agent.
The principal reimburses the agent for expenses
One of the main advantages of a contract for an agent is the minimal cost of its execution.
Firstly, the agent does not spend money on purchasing the goods, because they belong to the principal. And if a product sells poorly, it does not cause losses.
Secondly, the principal reimburses the agent for expenses under the contract. It is possible to set a fixed amount of compensation without taking into account actual costs. Another way is to calculate it based on the agent's actual expenses. Then, in order not to go broke on compensation, it is important for the principal to define in the contract:
- what expenses he reimburses (so that the agent does not include his morning coffee in the list) and their maximum amount;
- documents with which the agent confirms expenses.
The agent prepares a work report
A report is a mandatory document with which the agent informs the principal about the work done. We recommend that you define the following conditions in advance:
- report form - usually it is drawn up as a separate document;
- information that the agent includes in the report. For example, what kind of work the agent performed (list of services provided, list of goods sold, etc.) and how much money he spent on it. We recommend that the report also state the amount of the agent’s remuneration;
- The deadline for sending the report is after each transaction or for a period (for example, once a month).
The principal sends comments on the report within 30 days, unless another period is specified in the agreement. Later you won’t be able to make changes and you will have to pay the agent according to the report.
This is not all that can be said about agency agreements. We have planned several more articles about how the agent and the principal pay taxes under different interaction schemes.
Remuneration and reporting
According to Art. 1008, after completion of the work, the agent is obliged to submit a report, even if this was not specified in the contract. However, in practice, the reporting procedure is prescribed quite specifically, since this is in the interests of both parties. Unless otherwise documented, payment occurs one week after the submission of the paper describing the results, regardless of the customer’s acceptance or non-acceptance of the work.
The principal has the right not to accept the report, of which he is obliged to notify the executor within 30 days after completion of the assignment.
As already mentioned, the agent receives a reward for his actions. Its size can be indicated by a specific figure or be a certain percentage of the revenue received from the work done and transactions concluded. If the issue of payment is not reflected in the contract, then the law provides for remuneration in an amount corresponding to the cost of similar work or services.
