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Trade Representative
Definition, Explanation
Experts in distribution, advisers and informants often represent other companies in trade. This is legally regulated by trade representative act (Handelsvertreterrecht in the HGB). According to it, trade representatives are someone who:
- appears as a self-employed traders and thus organizes his activity his own, even timewise,
- works for one or several clients,
- or trades or mediates trades by order and for account of the represented company
The legal form of the trade representative is not legally constrained. It can be an individual person or a corporate entity. For individuals, a trade certificate suffices, no entry in the trade register is needed.
Kinds of trade representatives:
- One company representative
The trade representative covers all the products of a company - Multi company representative
The representative represents several clients. Here, the companies represented must not be competing with each other (non-competition clause) - Mediating agent
The representative mediates trades and can contract trades on behalf of the client - Regional representative
Clients assign the representative a region or a group of trading partners. All contracts made with respective partners will be attributed to the representative, no matter if he contributed to the trade, yielding a corresponding commission for him - Exclusive representative
In this case, it has been contracted that the representative will be the only one allowed to trade within the defined range of partners. Also called “sole agent“
Trade representative contract:
There are no formal restrictions about the contract, however it is advisable to contract such that both the client and the representative sign. A contract should specify:
- Names of the contracting parties and addresses
- The kind of trade representative, the representative’s duties and competence
- Operating range
- The subject of representation (products, customers)
- The duties of the representative and of the client
- Commission and compensation entitlement
- Restraints on competition
- Place of jurisdiction and place of performance
- Contract duration
- Date and signatures of contracting parties
Duties of the trade representative:
- Protection of interests
- Mediating and contracting duty
- Reporting duty
- Duty of secrecy
- Non-competition duty
- Duty to check creditworthiness
- Duty of safekeeping and delivering certain data
Duties of the company represented:
- Duty of paying commissions
- Duty to provide required documents
- Duty of information
- Duty to omit any action that would hinder the representative’s fulfilment of duties
Commission and compensation entitlement:
- Remuneration for successful trades to be considered contributed to by the representative
- Remuneration also for successive orders, if the kinds of trades are the same
- Commissions are a percentage of the turnover resulting from mediation
- The percentage value is subject to negotiation, else § 87 b HGB applies
- In case of cancellation of the trade representative contract, the representative is entitled to compensation by which the representative is remunerated for made contacts with customers and for transfer of acquired customers
Cancellation of the trade representation:
If the trade representation relationship has been contracted without a specified duration, it can be ceased by ordinary cancellation at the end a calendar month. Whereas the following minimal cancellation periods apply:
- in the 1st year of the contract 1 month
- in the 2nd year of the contract 2 months
- in the 3rd year of the contract 3 months etc.
- from the 6th year of the contract on, 6 months
In trade representation, there is no issue of false self-employment as such is prevented by the law, although the trade representative counts as an “employee-like self-employed”.
Tips, Checklist
- As a trade representative, you have to pay contributions to statutory pension insurance if you are working for only one company (at least 5/6 of your turnover generated through one client) and you are not employing any employee earning above 400 Euros a month
- Check your insurances (social insurance). Voluntary insurance possible
- Be counselled for contracting a trade representative relationship, e.g. by the German CCI (IHK), or use a model contract
- Adjust the model contract to fit your requirements
Literatures
Last update: 04/13/2010
