Agency, distribution and sales representation agreements are commonly used means for a business to expand its geographical reach without setting up a permanent establishment in a foreign country. While there are many elements to creating a successful commercial relationship, from a legal standpoint, knowledge of the legal framework in each target jurisdiction is essential to lower the risks of producing unintended consequences, which may ultimately affect the success of the relationship and create additional liability to your company. This becomes even more important in Latin American countries, such as Brazil, due to protective laws affecting the relationship with distributors, agents and sales representatives.
In Brazil, agency and distribution relationships are governed by Chapter XII of the Brazilian Civil Code, whereas the Brazilian Sales Representation Law (Law No. 4,886/65, amended by Laws No. 8,420/92 and No. 12,246/10), governs a sales representation relationship.
When determining the nature of the relationship, Brazilian courts will look at the facts, and not at the title of the agreement. For that reason, understanding the legal definition and characteristics of each category is fundamental.
An agency relationship will exist when an agent assumes, in a non-occasional basis and without any dependency, the obligation to promote, on behalf of another person, in exchange for remuneration, the performance of certain transactions, within a given area. A distribution relationship will exist when the agent is in the possession and control of the item to be transacted.
In contrast, a sales representative is legal entity or individual, without an employment relationship, who acts as an intermediary, in a non-eventual basis, on behalf of one or more people, for the conduct of commercial transactions, soliciting and mediating proposals or orders, to transmit them to principals, whether carrying out acts related to the performance of the transactions.
Companies should also be aware that in Brazil:
- Oral agreements are enforceable, but not recommended due to the complexity of the relationship and potential difficulties in establishing evidence if a dispute ensues. It is important to note that although the Brazilian Sales Representation Law specifically requires sales representation agreements to be in writing, courts will consider an oral agreement to be enforceable if its existence can be established through any type of evidence admitted by law.
- All sales representatives must register with the Regional Council of Sales Representative of domicile under a penalty of imprisonment and/or a fine. Distributors and agents are not subject to this requirement.
- Waiver of protective laws is permitted in limited instances for agency and distribution agreements, whereas for sales representation agreements it will be invalid as a matter of public order. For example, the Brazilian Sales Representation Law prohibits any alterations that directly or indirectly imply a reduction of the average earnings received by the sales representative during the last six months.
- Arbitration is an accepted method of dispute resolution for agency and distribution agreements. While there has been some controversy concerning its enforceability in a sales representation agreement under the argument that it would be against public policy, a recent judgement by the 38th Civil Chamber of Sao Paulo State Court of Justice upheld the validity of the arbitral agreement and competence of the arbitral tribunal to resolve the dispute.
- Exclusivity is presumed in agency and distribution agreements, but not in sales representation agreements.
- Termination obligations, such as notice and indemnification will differ according to the term and nature of the agreement and whether termination is without cause or for cause.
If you are planning to establish an international agency, distribution or sales representation agreement in Brazil, take note:
- Do not rely on form agreements.
- Avoid oral agreements.
- Ensure that the activities involved match the intended relationship.
- Be aware of local competition and anticorruption laws, which may affect your agreement.
- Seek local counsel advice before initiating such relationship.
For more information, please contact our Brazil Desk.
 TJ-SP-APL: 1024873-53.2014.8.26.0100, dated 6/21/2017.