Agency Contracts: Everything You Need to Know
Agency contracts are legal agreements between companies and agencies that outline the rights and responsibilities of each party and other details of their partnership.3 min read
Agency contracts are legal agreements between companies and agencies that outline the rights and responsibilities of each party and other details of their partnership. Such a contract can be used for a one-off project or a long-term partnership and obligates the company and agency to meet certain performance requirements for a specified task or duration of time.
Pros and Cons of Hiring an Agent
Engaging the service of an agent or agency is a cost-effective and easy way to grow your company without hiring additional employees. Besides having to pay salaries and bonuses to new employees, you also have to invest in their benefits, insurance, payroll taxes, equipment, and office space. However, you will not have to incur these additional costs if you hire an agent and use the money you save to meet other business needs.
In addition, you can avoid the legal issues that may result from hiring and firing employees because of market fluctuations. By hiring experts to perform specific tasks, you can eliminate the hassle and cost of providing training to your current employees.
However, hiring an agent also comes with certain risks, one of which is the possibility of an individual representative being reclassified as an employee. When this happens, a company that hires an agent must reimburse the state tax agency or IRS for unpaid employment taxes, penalties, and interest. While you cannot completely prevent reclassifications and contract audits, you can protect yourself from such charges to a certain extent by creating a written agency contract.
What is an Agency Contract?
An agency contract provides a good starting point for your partnership with an agency. You and the agency should have a discussion about the terms of the agreement, as well as concerns regarding responsibilities, work parameters, and payment. After agreeing on the terms and signing the agency contract, each party can focus on its field of expertise. You can concentrate on the development of your business, while the agent attempts to represent your company in the best manner possible.
What to Include in an Agency Contract?
- Recitals – Also known as the “whereas” clause, recitals provide important background information about your company and the agency you hire. This section should include a brief description of your business and the reason you hire the agency.
- Scope of Authority – This is a list of areas and tasks that you only want the agent to be involved in. The agent's privileges cannot exceed the authority listed in this portion of the contract.
- Territory – There are two options for you to choose from. You can either allow your agent to act with no geographical restrictions or explain in detail the geographical restrictions you wish to impose upon your agent.
- Compensation – In this section, you have to describe the payment that your agent will receive in exchange for the services rendered.
- Amendments – An indication that all amendments to the agency contract must be done in writing and signed by both parties.
- Representations and Warranties of the Parties – This is a paragraph that lists the assumptions underlying the contract. It confirms that both parties are entering into the contract based on each other's statement that the items listed are true.
- Indemnification – A provision that designates responsibilities to the parties if issues arise in the future and ensures that each party will be protected from the financial consequences of the harmful or illegal conduct of the other.
- Trademarks – A statement indicating that your agent will not use your trademarks inappropriately or create a new trademark that is similar to yours.
- Successors and Assigns – This section states whether the rights and obligations of the parties will be passed on to their heirs or successor organizations.
- Counterparts or Electronic Signatures – Even if you and your agent sign the contract in different locations or transmit signatures with electronic devices, every separate piece will be regarded as part of the same agreement.
- Severability – This is a provision that protects the terms of the agency contract as a whole, even if a part of it is invalidated in the future.
- Headings – The headings of each section of the contract serve to organize the document and are not meant to be operational parts of the agreement.
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