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.