A distributor purchases products and resells them on their own account and risk in their own name to customers, while an agent facilitates the conclusion of agreements between the principal and the client. The agent acts on behalf of the principal and receives commission without becoming a contracting party themselves.
The distinction between distribution and agency under Dutch law determines which rights and obligations apply to your commercial relationship. Under a distribution agreement, the distributor acquires ownership of the products and bears the complete commercial risk. Conversely, the commercial agent acts as an intermediary according to Article 7:428 paragraph 1 of the Dutch Civil Code (BW), whereby agreements are concluded on behalf and usually in the name of the principal. The classification of your cooperation form has direct consequences for termination periods, liability and potential compensation upon termination.
How does a distribution agreement work under Dutch law?
The distributor purchases products from a supplier and resells them to end customers in their own name and on their own account. The distributor determines the resale conditions independently and generates profit through margins between purchase and selling price.
A distribution agreement under Dutch law is an unnamed continuous contract without specific statutory regulation in the Netherlands. Consequently, parties enjoy considerable contractual freedom to establish arrangements. However, this freedom also requires careful contract drafting, because lack of clear agreements creates legal uncertainty.
The distributor becomes owner of the products upon purchase and typically maintains inventory. This means they bear the complete risk: when an end customer fails to pay, the loss falls on the distributor as the contracting party. Moreover, the distributor determines the resale conditions independently, including the price to their customers.
Important considerations in distribution agreements:
- Exclusivity and sales territory within specific regions
- Minimum purchase obligations and inventory levels
- Pricing arrangements and margins (within competition law boundaries)
- Warranties, product liability and indemnifications
- Marketing contributions and trademark usage
- Duration, termination periods and termination conditions
Practice example: A technology supplier in Amsterdam concludes a distribution agreement with a reseller for software products. The reseller purchases licenses for €50 per unit and resells them for €85. When a customer becomes bankrupt before payment occurs, the reseller bears the loss of €85. The supplier has already received their €50 and runs no risk.
Distribution agreements under Dutch law fall under general contract law and partially under the rules of service agreements. Additionally, competition law applies fully: imposing fixed resale prices on distributors is prohibited as an unlawful price fixing arrangement. Geographic restrictions may likewise conflict with competition regulations.
What does an agency agreement entail in Dutch law?
Under agency, the principal instructs the commercial agent to facilitate the conclusion of agreements between the principal and end customers. The agent receives commission as remuneration but does not become a party to the agreements concluded.
The agency agreement in the Netherlands is a named contract with specific regulation in Book 7, Section 4 of the Dutch Civil Code. This legislation is largely established at European level, meaning core rules are comparable throughout the European Union. Article 7:428 BW defines agency as an agreement whereby the commercial agent provides intermediation for the conclusion of agreements, potentially concluding these agreements in the name and on behalf of the principal, without being subordinate to the principal.
The characteristic feature is that the agent ‘drops out’: once the agreement between principal and client is concluded through the agent’s intermediation, the agent bears no further responsibility for execution. The principal remains the contracting party and bears the risk. As compensation, the agent receives commission, typically a percentage of the order value.
Obligations of the commercial agent:
- Facilitate conclusion of agreements
- Act according to principal’s instructions
- Report relevant market information
- Attract creditworthy customers
Obligations of the principal:
- Payment of agreed commission
- Provide necessary information and materials
- Observe statutory termination periods
- Payment of goodwill compensation upon termination (where applicable)
However, the agent is liable when they attract a customer whom they should reasonably have known to be insolvent. This limited liability illustrates the protected position of commercial agents under Dutch law.
What rights and risks apply to distributors versus agents in the Netherlands?
Distributors in the Netherlands bear the complete economic risk for resale and payment, while agents only risk losing their commission. Distributors operate as independent entrepreneurs; agents enjoy statutory protection with extensive rights upon termination.
Under distribution, the distributor acts on their own account and risk as an independent entrepreneur. When an end customer fails to pay, the distributor as contracting party remains with the loss. The supplier has already received their sales proceeds. Conversely, the agent bears no economic risk for transactions concluded: the only risk concerns missing commission if a deal fails.
Risk-bearing as distinguishing criterion:
The extent to which a party bears financial risks partly determines classification as agent or distributor according to competition law. A pure agency relationship is in principle excluded from application of European competition law. Therefore, price arrangements may be made with an agent. However, if the agent bears significant financial risks through mandatory investments in inventory or marketing materials, competition law may still apply.
Contact a specialized lawyer in Amsterdam for legal advice regarding your specific commercial relationship. A contract law attorney analyzes your situation and advises which cooperation form best suits your business objectives.
How does termination work for distribution and agency agreements under Dutch law?
Under agency, statutory termination periods apply that increase with the duration of the relationship, plus potential entitlement to goodwill compensation. For distribution, parties establish their own termination arrangements, although prolonged dependency may lead to equity obligations.
Termination of an agency agreement follows strict statutory frameworks according to Article 7:437 BW. The notice period amounts to a minimum of one month in the first year, two months in the second year and three months from the third year onwards. These periods are mandatory: parties cannot deviate to the agent’s detriment. Furthermore, the agent is under circumstances entitled to client compensation or goodwill compensation upon termination.
Conditions for goodwill compensation in the Netherlands:
- Agent has attracted new clients or substantially expanded existing client base
- Principal still has considerable advantage from these clients after termination
- Payment of compensation is reasonable considering all circumstances
This goodwill compensation is semi-mandatory: deviation to the agent’s detriment is not permitted. In practice, this compensation often amounts to one to two years’ commission, depending on specific circumstances. The entitlement to goodwill compensation fundamentally distinguishes agency from distribution.
For distribution agreements, parties enjoy contractual freedom to agree on termination periods and termination conditions. No statutory obligation exists to pay goodwill or client compensation. However, in exceptional circumstances a court may rule that a longer termination period or damages is reasonable. This occurs, for example, in a long-term relationship exceeding ten years or significant dependency on the distributor’s side.
Amsterdam example: A distributor of medical equipment had maintained an exclusive distribution agreement for North Holland for fifteen years. The supplier terminated with three months’ notice. The Amsterdam District Court ruled that considering the long-term relationship, substantial investments in showroom and personnel, and dependency on this single supplier, a reasonable termination period was at least eighteen months. The distributor was awarded €450,000 in damages.
When should you choose distribution versus agency according to Dutch legislation?
Choose distribution when you want control over end sales and profit through margins, accepting inventory risk. Choose agency when the principal wants control over prices and conditions, while the agent earns commission without inventory or payment risk.
The choice between distribution and agency depends on your business strategy and risk appetite. Distribution offers entrepreneurs greater independence: you determine your own selling price, marketing strategy and customer approach. However, this freedom also brings responsibility for inventory management, payment risks and product liability. Additionally, distribution often requires substantial investments in inventory, logistics and marketing.
Agency conversely limits your financial risk considerably. You invest primarily in sales activities and relationship management, without concerns about inventory or bad debts. The principal retains control over pricing and contract conditions, ensuring market consistency. However, your earning potential is limited to the agreed commission percentage, typically between 5% and 20% of order value.
Advantages of distribution:
- Higher profit margins with successful sales (often 30-50%)
- Complete control over pricing and customer relationships
- Possibility to build own brand value
- Independent entrepreneurial position
- No statutory goodwill compensation owed upon termination
Advantages of agency:
- Limited financial risk without inventory or payment risk
- Statutory protection with fixed termination periods
- Entitlement to goodwill compensation with successful client base
- Possibility to combine multiple agencies
- Stable commission model without pricing pressure
From the supplier or producer perspective, agency offers greater control over brand positioning and pricing. You maintain direct relationships with end customers and can apply uniform conditions. However, you also bear the complete commercial risk. Distribution conversely reduces your risk because the distributor purchases inventory, but you lose direct grip on the end market.
Do you want certainty regarding the optimal cooperation form for your situation? Lawyers specialized in commercial contract law in Amsterdam analyze your business model and advise on the legal structure that best aligns with your objectives. A well-structured agreement prevents costly disputes and protects your commercial interests.
What role does competition law play in agency and distribution under Netherlands law?
The applicability of Dutch competition law differs fundamentally between agency and distribution. For a pure agency relationship, where the agent bears no significant financial risks, European competition law is in principle not applicable. This means the principal may make price arrangements with the agent for sales to end customers. The agent simply follows the principal’s instructions and prices.
For distribution, however, competition law applies fully. Suppliers are prohibited from imposing fixed resale prices on distributors, as this constitutes an unlawful price fixing arrangement according to Article 6 of the Dutch Competition Act. You may provide a recommended retail price, but the distributor must remain free in their ultimate price determination. Geographic restrictions may likewise prove problematic when they restrict competition.
Competition law considerations:
- No fixed resale prices for distribution
- Territorial restrictions must be proportional
- Critically assess exclusivity arrangements
- For agents: risk profile determines competition law applicability
- Selective distribution must apply objective criteria
In practice, this means a distributor in Amsterdam must be free to determine their own pricing strategy, even when this leads to price competition with other distributors. Suppliers may work with recommended retail prices or maximum prices, provided the distributor genuinely remains free to apply their own prices.
What happens with mixed forms and classification questions in the Dutch jurisdiction?
Legal classification as agency or distribution in the Netherlands depends on factual execution and contractual arrangements, not on the name parties give to the agreement. The risk profile and degree of independence ultimately determine legal status.
In practice, hybrid situations regularly occur whereby elements of both agency and distribution are present. For example, an ‘agent’ who does maintain inventory or must make significant investments, or a distributor who is managed so tightly that they effectively function as an extension of the supplier. In such cases, the court must classify the agreement according to its true nature.
The Dutch Supreme Court has determined that not the designation of an agreement is decisive, but the substantive arrangements and practical execution. When an agreement is called ‘agency agreement’ but the agent bears substantial financial risks such as mandatory inventory of €50,000 or investments in sales space, a court may conclude that distribution actually exists. Conversely, a ‘distribution agreement’ may be classified as agency when the distributor bears hardly any risk and primarily facilitates.
Indicators for agency:
- Acting in the name and on behalf of principal
- No acquisition of product ownership
- Commission as remuneration
- Limited investment obligations
- No payment risk with end customers
Indicators for distribution:
- Acting in own name and on own account
- Ownership acquisition through purchase
- Profit margin as earning potential
- Substantial investments in inventory or facilities
- Payment risk lies with distributor
Case law demonstrates that this classification has practical consequences for termination periods, goodwill compensation and liability. In 75% of cases where discussion arises about the nature of the agreement, goodwill compensation plays a central role. Agents claim this compensation while principals assert that distribution exists without statutory entitlement to compensation.
Contact legal advisors in Amsterdam promptly when you have doubts about the correct classification of your commercial relationship. A commercial law attorney assesses your agreement and practical situation, and advises on potential legal risks. By proactively creating clarity, you prevent costly disputes upon termination.
How do you draft a watertight agency or distribution agreement under Dutch law?
A carefully drafted agreement prevents disputes and protects both parties’ interests. For an agency agreement under Dutch law, you must consider the statutory provisions in Book 7 BW, which are largely mandatory or semi-mandatory law. For example, you cannot deviate from the minimum termination periods or the entitlement to goodwill compensation to the agent’s detriment.
Essential elements in agency agreements:
- Precise description of products or services
- Geographic territory and potential exclusivity
- Commission arrangement with clear calculation method
- Principal’s instruction powers
- Non-competition clause (during and after termination)
- Minimum performance standards or targets
- Information obligation regarding market developments
For distribution agreements in the Netherlands, you enjoy greater contractual freedom, but precisely therefore everything must be explicitly regulated. Deficiencies in the agreement lead to legal uncertainty and potential disputes. Therefore, pay extra attention to subjects not statutorily regulated.
Essential elements in distribution agreements:
- Purchase conditions and pricing arrangements (within competition rules)
- Minimum purchase obligations per year or quarter
- Inventory management and logistics arrangements
- Geographic sales territory and exclusivity
- Trademark usage and intellectual property protection
- Product liability and warranties
- Marketing and sales promotion obligations
- Reporting and information duties
- Agreement duration and termination periods
- Handling of inventory and ongoing orders upon termination
- Dispute resolution and applicable law
Concrete figures and percentages create clarity: determine, for example, that the distributor purchases a minimum of €100,000 in products annually, maintains inventory of ten percent of annual turnover, and pays within fourteen days with two percent discount for cash payment. Specify that the supplier provides a marketing contribution of five percent of purchase value for joint promotional activities.
Practice example: A software company in Amsterdam concluded a distribution agreement with vague provisions regarding termination. After eight years, the company wanted to terminate the agreement with three months’ notice. However, the distributor had made substantial investments in specialized personnel and dedicated servers. The Amsterdam District Court ruled that reasonableness and fairness required a termination period of eighteen months, resulting in a damages claim of €320,000 against the supplier.
Have your agency or distribution agreement drafted or reviewed by a Dutch lawyer specialized in commercial contracts in Amsterdam. A legal specialist ensures a balanced agreement that protects your business interests and complies with all statutory requirements. This prevents costly disputes and provides certainty for successful long-term cooperation.
