Under Dutch law, the choice between agency and distribution fundamentally determines your risk profile, profit margin and legal position. In agency arrangements under Dutch law, an intermediary negotiates on your behalf for commission without ownership risk, while (under Dutch law) a distributor purchases in their own name and resells with complete commercial freedom but also bears all financial risks.
Agency structures in the Netherlands operate under Book 7, Section 4 of the Dutch Civil Code, where agents act as intermediaries who facilitate contracts between you and end customers. The agent never becomes a contractual party themselves. However, distributors purchase products directly from you and subsequently resell them under their own name to their customers, creating an entirely different legal relationship.
This distinction carries far-reaching consequences for your business operations. In agency relationships, customers remain legally your customers and the agent receives commission typically ranging from 15-25% of order value. According to Dutch contract law, this preserves your direct legal relationship with end users. Conversely, in distribution arrangements, customers become the property of the distributor, who determines their own profit margin through the difference between purchase and selling price.
What Distinguishes Agency from Distribution in Dutch Law?
A commercial agent negotiates on behalf of the principal for commission, while a distributor purchases goods for their own account and resells them independently with their own profit margin.
Dutch legislation makes a sharp distinction between both forms. A commercial agent acts as an intermediary according to Book 7, Section 4 of the Dutch Civil Code. Therefore the agent concludes agreements on your behalf with end customers but never becomes a contractual party themselves. Conversely, a distributor purchases products directly from you and subsequently sells them onwards under their own name to their customers.
This difference has extensive implications for your enterprise. In agency arrangements, customers remain legally your customers and the agent receives commission of generally 15-25% over order value. However in distribution, customers become property of the distributor, who determines their own profit margin through the difference between purchase and selling price.
The district court judges strictly on this distinction. In a recent case concerning lamp sales, one party claimed agency existed while the other party claimed distribution. The court concluded that invoicing customers directly and acting in one’s own name qualified as distribution, despite earlier discussions about an agency agreement.
Moreover, Dutch competition law applies different rules for both constructions. Agency relationships are in principle excluded from competition law, allowing you to make concrete price agreements with an agent. In distribution, that is prohibited because it amounts to illegal price fixing.
What Risks Do You Bear in Agency Versus Distribution Under Dutch Law?
The risk distribution differs fundamentally between both constructions. In agency, you as principal bear the complete economic risk. When a customer introduced by the agent fails to pay, that remains your problem because you are the contractual party. The agent only runs the risk of not receiving commission when the transaction does not proceed.
Nonetheless, an agent is liable in specific situations. When the agent introduces a customer whom they reasonably should have known was insolvent, they can be held liable for damages. This duty of care protects you against deliberately introduced defaulters.
A distributor, however, bears complete independent risk. They have acquired the goods in ownership and must collect payment from their customers themselves. Non-payment, product damage or market risks are exclusively their problem. This explains why distributors generally charge higher margins than agent commission – the greater risk requires higher remuneration.
Furthermore, inventory management plays a crucial role. A distributor must maintain inventory with associated financing costs and obsolescence risk. An agent has no inventory and thus no capital tied up in products.
How Does Competition Law Influence Your Choice in the Netherlands?
European and Dutch competition law treats agency and distribution differently. For agency, an important exception applies: when the agent bears no significant financial risks, agreements with this agent fall outside the prohibition on anti-competitive agreements. This means you can prescribe concrete prices at which the agent offers products on your behalf.
However, take note: once an agent bears substantial risks – for example through mandatory investments in showrooms, considerable inventory or marketing – the relationship potentially qualifies as ‘impure agency’. Then competition law becomes applicable after all with all restrictions that entails.
In distribution, competition law applies unreservedly. You may not impose fixed resale prices on a distributor because this constitutes illegal vertical price fixing. You can communicate recommended retail prices, provided it is clear that the distributor remains free to determine their own prices.
Additionally, territorial restrictions are delicate. You may assign a distributor an exclusive sales territory where you appoint no competing distributors. However, you may not prohibit the distributor from selling actively or passively outside their territory, because that fragments the internal market.
What Financial Aspects Should You Consider According to Dutch Legislation?
The remuneration mechanisms differ considerably. A commercial agent receives commission that generally varies between 15% and 25% of order value, depending on industry, product complexity and market conditions. You pay this commission once the transaction materializes, regardless of whether the end customer ultimately pays.
A distributor earns from their margin: the difference between what they purchase from you and what they sell onwards to their customers. These margins often lie between 30% and 50%, but can reach 100% in some industries. The distributor determines this margin themselves within the boundaries of market forces.
Subsequently, investment requirements play a role. From distributors you can expect substantial investments in inventory, logistics and marketing. Agents invest primarily in relationship management and sales activities, with significantly lower capital burdens.
Moreover, your cash flow position often determines preference. In distribution you receive payment once the distributor purchases, while in agency payment only arrives when the end customer pays. For enterprises with limited working capital, distribution therefore offers liquidity advantage.
What Happens Upon Termination of the Relationship in the Netherlands?
Termination of an agency agreement is strictly regulated in the Dutch Civil Code. Statutory notice periods increase from one month in the first year to three months after more than two years of cooperation. These periods are mandatory and can contractually only be extended, not shortened.
Additionally, a commercial agent has, under specific conditions, entitlement to goodwill compensation after termination. This compensation reimburses the agent for new, permanent customers they have introduced and from whom you still profit after their departure. Maximum compensation amounts to one annual salary, calculated over the average of the last five years or the entire duration if shorter.
In distribution, more contractual freedom exists. Parties can agree notice periods themselves, whereby reasonableness and fairness must be observed. A distributor has no statutory right to goodwill compensation. However, under exceptional circumstances – such as years of dependency or substantial investments at your request – damages may be owed based on unreasonable dismissal.
Furthermore, customer retention plays a major role. In agency, customers remain legally your property and you can continue serving them yourself after termination or entrust them to a new agent. In distribution, customers are property of the distributor, meaning you lose these relationships unless you have contractually established re-entry possibilities.
What Should You Consider When Selecting a Partner in the Netherlands?
Industry knowledge forms the foundation of successful cooperation. Research how much experience your potential agent or distributor has with products comparable to yours. Verifying membership in industry organizations and possession of required licenses are essential indicators for professionalism.
Subsequently, local expertise demands thorough evaluation. Does the candidate possess knowledge of regional legislation and regulations? Do they have experience with customs formalities for imports from outside the EU? Do they understand local market dynamics and culture? These factors determine 70% of market penetration success.
Financial capacity requires careful due diligence. Analyze annual accounts from at least three years, assess the liquidity position and verify whether the candidate can fulfill their other contractual obligations. A financially weak partner endangers you, regardless of the legal construction.
Additionally, reputation deserves thorough investigation. Conduct integrity due diligence: who are the ultimate stakeholders? How ethically does the organization conduct business? Compliance with anti-corruption legislation and corporate social responsibility are crucial criteria that directly influence your own reputation.
Finally, you critically assess the marketing and sales strategy. How will the candidate position your products? Which marketing instruments will they deploy? Does their approach match your brand image? In international distribution, qualitative translation of marketing materials is essential – a literal translation rarely suffices to convey your message effectively.
How Do You Prevent Legal Ambiguity Under Dutch Law?
A written agreement is indispensable, whereby the legal qualification must lead over the chosen title. Case law demonstrates that a ‘distribution agreement’ prescribing commission for mediation is reclassified by the court as an agency agreement with all statutory protection that entails.
Namely, concrete working arrangements are determinative for legal qualification. When your ‘distributor’ invoices on your behalf, maintains no inventory and receives commission, you factually create an agency relationship. Conversely, you make your ‘agent’ into a distributor when they purchase in their own name, invoice themselves and apply a fixed profit margin.
Moreover, territory definition must be carefully formulated. In exclusive distribution you cannot appoint other distributors in that area, but the distributor may generally sell outside their territory. This nuance requires clear contractual agreements to prevent disputes.
Furthermore, performance standards deserve contractual establishment. Agree minimum turnover targets, market penetration requirements or customer acquisition. When your partner fails to achieve these targets, you want clearly described intervention rights without discussion about notice periods or damages.
Practice Example: The Lampion Case in Amsterdam
A Dutch importer of Chinese design lamps with integrated speakers wanted to cooperate with a furniture store for distribution. Parties spoke verbally about an agency agreement whereby the furniture store would receive 20% commission. However, the furniture store invoiced end customers themselves and maintained direct customer contact.
After a dispute over unpaid invoices of €15,000, the district court ruled that no agency existed. The furniture store acted in its own name and for its own account, which qualifies as distribution. Therefore the furniture store had acquired the lamps in ownership and was fully liable for payment to the importer.
This example illustrates why clear contractual agreements are essential. The chosen designation ‘agency’ was not determinative – the actual conduct determined the legal qualification. The furniture store lost its claim to commission and still had to pay the full invoices as a distributor who had purchased for resale.
Entrepreneurs conducting business with intermediaries must therefore make crystal clear from day one who becomes contractual party in sales to end customers, who invoices, who bears risk and how remuneration is structured. Ambiguity on these points leads almost inevitably to costly disputes.
What Strategic Considerations Are Decisive in the Dutch Jurisdiction?
Your growth strategy partly determines the optimal choice. For rapid market penetration with limited own risk, agency offers advantages. You retain customer relationships, control pricing and bear limited geographic risk. For established markets where economies of scale are central, distribution often delivers better results through the independence and entrepreneurial drive of distributors.
Subsequently, control plays a crucial role. In agency you retain direct control over prices, conditions and customer communication. In distribution you largely delegate this control, which on one hand offers flexibility but on the other hand carries brand risks when distributors sell your products below value.
Additionally, product complexity often determines preference. For technically complex products requiring intensive support, agents work more effectively because they cooperate closely with you. For standard products where price and availability are decisive, independent distributors function better.
Finally, you weigh the exit strategy. In agency the relationship ends after notice period and possible goodwill compensation, after which you continue yourself or through new agents. In distribution you lose the customer base, unless you have contractually secured takeover possibilities.
Do you want certainty about the optimal legal structure for your commercial relationships? Specialized lawyers in Amsterdam analyze your situation and advise on the most suitable construction taking into account your growth strategy, risk profile and competition law obligations.
What Are the International Aspects of Your Choice in Dutch Law?
In cross-border trade within the EU, largely harmonized rules apply for agency thanks to European legislation. The core principles for commercial agents are comparable in all member states, providing legal certainty for international expansion.
However, note: outside the EU, agency rules sometimes deviate substantially. Some countries provide stronger protection for agents with higher compensation upon termination, while other countries offer less protection. Thorough legal research into local law is indispensable before appointing international agents.
For distribution, no harmonized European rules exist. Each country has its own case law concerning termination, damages and exclusivity protection. This fragmentation requires customization per jurisdiction, whereby Dutch entrepreneurs often choose Dutch law as applicable law with arbitration as dispute resolution.
Moreover, tax planning plays a role. The fiscal treatment of commission versus profit margin differs per country. In some jurisdictions, one construction leads to lower tax burden than the other, considerably affecting your net result.
