In Part 1 of this series, we explored how agency relationships can arise – sometimes even without intention – and the legal implications that follow. In this part, we shift focus to where agency can be a powerful tool for businesses when properly structured and managed.

Why Use Agency Agreements?

Agency agreements are more prevalent in the commercial world than many realise. They enable one party (the principal) to authorise another (the agent) to act on their behalf – a mechanism that can significantly streamline operations and open up new markets.

Professional advisors such as lawyers and accountants frequently act as agents. For instance, a business might appoint a legal representative to act in a foreign jurisdiction where it has no local presence or legal expertise. Similarly, an accountant may handle financial negotiations or tax matters on a company’s behalf.

But the use of agency is not limited to the professional services world. The commercial benefits span across sectors and company sizes.

Strategic Benefits of Agency

In Part 1, we outlined several key commercial advantages:

· Low-cost business expansion

· Anonymity in transactions

· Access to foreign expertise

In addition to these, agency offers strategic flexibility in the following scenarios:

Start-ups: Small or growing businesses often need to punch above their weight, making agency an efficient way to access specialist skills without long-term staffing costs. Agents can act quickly, decisively, and with the relevant expertise – ideal for time-sensitive decisions.

Group companies: Agency is frequently used within corporate groups. For example, a parent company may be appointed as an agent for a subsidiary to centralise decision-making, streamline operations, or coordinate group-wide transactions such as M&A, procurement, or compliance activity.

Key Risks: Know What You’re Signing Up For

Despite its advantages, agency carries inherent legal risk – particularly if not clearly documented. Risks arise not only from what agents do with authority, but also what they do without it.

For principals:

· Unauthorised acts: A principal may still be bound by an agent’s actions, even where they exceed their authority.

· Civil or criminal liability: If an agent acts negligently or fraudulently, liability can flow back to the principal.

· Bribery risks: Under laws such as the UK Bribery Act, a business can be liable for bribes paid by an agent—even unknowingly.

For agents:

· Personal liability: If an agent fails to disclose they are acting for a principal, they may be held personally liable under the contract.

· Breach of warranty of authority: Agents who act without authority may be liable for losses caused to third parties.

These risks underline why having a carefully drafted agency agreement is so critical.

Distributor vs Agent – A Key Distinction

Agency agreements are often confused with distributor arrangements, but they differ fundamentally:

· Agent: Facilitates transactions on behalf of the principal, and typically earns a commission. The contract is between the principal and the third party.

· Distributor: Buys goods from the supplier and resells them in their own name. The distributor takes on commercial risk and contracts directly with customers.

Understanding this distinction is crucial, particularly in relation to competition law, liability, and commercial risk.

Berry Smith Comment

Agency agreements can be a cost-effective and flexible solution for businesses looking to delegate authority or expand operations. But these relationships come with real legal exposure if not handled correctly.

At Berry Smith, we help clients assess when agency is the right approach and ensure that agreements are clear, practical, and legally robust. Whether you’re appointing an agent in the UK or overseas, we can assist in drafting tailored agreements that protect your interests and minimise risk.