Commission Agreement Template
A commission agreement, or a commission sales agreement, is a legally binding contract used between two parties. The first party is generally referred to as the “principal,” and they have goods and services they are looking to sell. The second party is typically referred to as the “agent.” The principal hires the agent to sell such goods for a commission, which is a percentage or other agreed amount for the sale of each service or good. A commission agreement details the relationship between the principal and the agent.
- This commission agreement template serves as a go-by that can help assist you in creating your own commission agreement.
- A commission agreement is an important agreement that a company should use when hiring a new salesperson.
- This commission agreement template is split into easy to follow sections to define the terms of the agreement between the principal and the sales representative.
- A commission agreement sets the amount or percentage of commission due to the agent after the sale of goods or services.
Legal Terms Found in a Commission Agreement Simplified
Legal terms can be hard to understand. You should be familiar with the terms typically used in a commission agreement. Here are a few to help you form a general understanding of the terms in a commission agreement:
- Principal – This party to a commission agreement is the distributor or seller.
- Agent – This is the party contracted by the principal (seller) to sell certain goods or services. An agent is a sales representative for the services and products produced by the Principal.
Why is a Commission Agreement Necessary?
A commission agreement is necessary for a number of reasons. Providing an agreement between two parties avoids common misunderstandings that the parties may have if they did not clearly discuss the terms of a contract. Oral agreements can easily be forgotten or misconstrued. Implementing a written agreement ensures the parties understand the relationship between the parties and realizes the expectations under the agreement.
A written and executed commission agreement is a legal document that protects the principal and agent. A vital element of a commission agreement is the payment structure. The method of payment in this type of agreement is referred to as commission. The commission is the percentage due based upon the sale of the defined services or products listed in the agreement.
A commission agreement should be used when a company is hiring a new employee who is to be paid either exclusively or in part on commission. Conversely, if an individual is being hired and the employer has not provided a commission agreement, the commission agreement can be provided to make sure everything is properly documented and agreed upon. The employer should set a “base amount” if necessary if the employee is entitled to a monthly base rate. The employer may also be entitled to a commission on top of a monthly base.
Essential Elements in a Commission Agreement.
A commission agreement should be detailed and customized to fit a company’s needs. Some of the most important components in a commission agreement include:
- Parties to the Agreement: The parties to the contract should be identified. The information should be accurate in the agreement. Both the principal and agent’s contact information should be listed in the agreement as well.
- Authorization of Sales: This is a standard provision of a commission agreement that authorizes the agent to identify him or herself as an authorized agent of the principal.
- Scope of Sales: The scope of sales defines the agent’s parameters while selling the goods or services.
- Sales Region: The sales region defines where the agent is to engage in selling the products and services. This is set by the principal, and the agent agrees not to sell outside of the defined sales region.
- Earnings and Commission:This part of the contract spells out the payment terms and commission structure. It also sets a payment schedule for when the agent is to be compensated. This part of the agreement should be as detailed as possible. The way the commission is calculated should also be included to prevent any misunderstandings between the two parties.
- Non-Compete Clause: Some commission agreements may bind an agent to a non-compete. A non-compete provision restricts the agent from representing other distributors while under contract with this principal. Some non-competes are stricter than others, depending on the goods and services being sold. Some may restrict an agent from selling similar products within a defined radius, while others may not.
- Confidentiality and Property Rights: This binds the parties to protect each other’s confidential information. This extends to proprietary information that is to be kept in confidence at all times.
- Dispute Resolution:As with any legal contract, a dispute resolution contract is necessary. This details the parties’ obligation to settle a dispute before seeking legal action.
Common Mistakes and Consequences of not using a Commission Agreement
A commission agreement is an important contract in business relations. Some common mistakes to watch out for include:
- Misidentifying the Parties
- Failing to include a non-compete clause if applicable
- Excluding a payment structure, commission rate, base pay, and payment schedule
- Not contacting an experienced attorney to review the terms of your commission contract.
How to get your Commission Agreement Signed
There are a couple of ways to get your commission agreement signed: in person or online. An electronic signature is legally binding and is one of the most convenient modes of signatures in today’s fast pace world. Adding ApproveMe’s software in your routine business practices simplifies the signing process and improves customer satisfaction while boosting your company’s success.
Entrepreneurs face plenty of obstacles when starting up a new business. It can be puzzling when trying to figure out what software is best for your business. Keeping track of your company’s sales is a top priority. Here are a few helpful tools to keep you organized while tracking your company’s progress:
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COMMISSION AGREEMENT TEMPLATE
THIS Commission Agreement (“Agreement”) is being made between ____________________ (the “Principal”) of _________________________________________________________________and ________________________ (“ the Agent”) of _____________________________________ collectively referred to as “the Parties” and is made effective on this _____ day of ______, 20___.
WHEREBY the Principal is involved in the business of ________________.
The Agent shall perform the below job duties and desires to sell the below described products:
The Agent hereby agrees to sell the above-referenced product(s) for commission.
IN CONSIDERATION THEREOF, the Parties agree to the following:
AUTHORIZATION OF SALES
The Agent agrees to identify him or herself as an authorized Agent of the Principal for the sale of the above product(s).
SCOPE OF SALES
The Agent understands and agrees that they will abide by the below scope and parameters while selling the product(s).
2.1 The Principal agrees to deliver any and all promotional items used to acquire sales. Shall the Agent desire to use their own promotional materials; they must first obtain written approval from the Principal.
2.2 The price of the above-referenced products shall be determined and set by the Principal.
2.3 The Principal shall furnish a Sales Agreement template for use by the Agent engaged in all sales of the product(s).
The Parties understand and agree that the Agent will sell the product(s) in the below region (hereinafter referred to as the “Sales Region”).
__________________________________________________________________________________________________________________________________________________________________________Agency agrees not to sell the product(s) outside of the defined Sales Region.
The Agent understands and agrees not to sell any product(s) for any competitor in direct competition with the Principal within the above Sales Region for ____ years after the termination of this commission agreement.
EARNED COMMISSIONS AND PAYMENT STRUCTURE
The Parties agree that the authorized Agent shall be compensated in the following fashion (“Commission”):
The Principal shall compensate the Agent:
The Principal agrees to reimburse the Agent for “out-of-pocket” expenses incurred by the Agency in accordance with the Principal’s policies and procedures.
DURATION AND TERMINATION
This Agreement shall be effective on the date hereof and shall continue until terminated by either Party upon _____ business days written notice.
CONFIDENTIALITY AND PROPERTY RIGHTS
Throughout the duration of this Commission Agreement, it may be necessary or the Principal to disclose protected information including, but not limited to, industry and trade secrets, propriety and confidential information to ensure the Agent can succu4ssfully sell the product(s). The Agent is not permitted to share or disclose such confidential information whatsoever without written permission from the Principal.
The Principal retains all of its intellectual property rights in and to its Confidential Information. Immediately upon a written request by the Principal at any time, the Agent will turn over to the Principal all Confidential Information of the Principal and all documents or media containing any Confidential Information of the Principal and any and all copies or extracts thereof.
Further, the Agent shall promptly return to the Principal all copies, whether in written, electronic, or other form or media, of the Principal’s Confidential Information, or destroy all such copies and certify in writing to the Principal that such Confidential Information has been destroyed. In addition, the Agent shall also destroy all copies of any Notes created by the Agent or its authorized Representatives and certify in writing to the Principal that such copies have been destroyed.
WARRANTIES AND REPRESENTATIONS
The Parties to this Agreement fully represent that they are authorized to enter into this Commission Agreement. The obligations and performance of either the Principal or Agent shall not infringe upon or violate the rights of any third party or violate any other agreement between the Principal or Agent, any other individual, business entity, or formal organization, or interfere with any law and or governmental regulation.
In the event any part or provision of this Commission Agreement is deemed unenforceable or invalid, in part or in whole, that part shall be severed from the remainder of the Commission Agreement, and all other parts or provisions shall continue in full force and effect as valid and enforceable.
No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set out in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach, or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.
This Agreement shall inure to and be binding upon the undersigned and their respective heirs, representatives, successors and permitted assigns. This Agreement may not be assigned by either Party without the prior written consent of the other Party.
Parties to this Agreement shall first attempt to settle any dispute through good-faith negotiation. If the dispute cannot be settled between the parties via negotiation, either party may initiate mediation or binding arbitration in the State of ________________.
If the parties do not wish to mediate or arbitrate the dispute and litigation is necessary, this Agreement will be interpreted based on the laws of the State of _________________, without regard to the conflict of law provisions of such state. The Parties agree the dispute will be resolved in a court of competent jurisdiction in the State of ______________________.
The prevailing Party to the dispute will be able to recover its attorney’s fees and other reasonable costs for a dispute resolved by litigation or binding arbitration.
GOVERNING LAW AND JURISDICTION
The laws of the State of _______________ shall govern as to the interpretation, validity, and effect of this Agreement.
This Agreement constitutes the sole and entire Agreement of the Parties regarding the subject matter contained herein and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, regarding such subject matter. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each Party hereto.
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same Agreement. A signed copy of this Agreement delivered by facsimile, email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
This Agreement and related documents entered into in connection with this Agreement are signed when a party’s signature is delivered electronically, and these signatures must be treated in all respects as having the same force and effect as original signatures.
This Agreement cannot be changed, modified, terminated, canceled, rescinded, or in any other way altered or negated unless the same is in writing and signed by the Party against whom enforcement of the change, modification, discharge, termination, cancellation, or rescission is sought.
It is agreed that all understandings and agreements heretofore had between the parties are merged in this Agreement, which alone fully and completely expresses their understanding, and this Agreement has been entered into after full investigation and consideration, neither Party relying upon any statement or representation, not embodied in this Agreement, which may be claimed to have been made by any of the parties hereto.
IN WITNESS WHEREOF, the Principal and Agent have executed this Commission Agreement on the day and year first above written.
Dated: _____________________________ Dated: _______________________________
Principal’s Signature Agent’s Signature
Principal’s Printed Name Agent’s Printed Name
Principal’s Contact Information: Agent’s Contact Information:
Address: ______________________________ Address: _____________________________
Phone Number: _________________________ Phone Number: _________________________
Email Address: _________________________ Email Address: _________________________
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Frequently Asked Questions and Resources
What is a contract?
Contracts are defined as written or spoken agreements which are enforceable by law. They can cover any topic or industry, whether sales, tenancy, employment, or otherwise (source).
What are the different types of contracts?
There are many different types of contracts, as defined by upcounsell, those for fixed prices, employment, lump sums, time and materials, unilateral or bilateral contracts, simple contracts and more. Each has its own specific terms, and can either be oral or written and some are non-negotiable (like adhesion contracts) while others have room to be adjusted or amended.
What makes a contract different from an estimate, quote, bid, or proposal?
Mainly contracts are set and finite and legally binding, whereas estimates, quotes, bids, and proposals are possibilities which can be accepted, rejected, negotiated, or ignored altogether. The key difference is that often a bid or proposal will contain terms and conditions that can be signed by the requestor and turned into a contract (source).
What should I include in my contract?
Every contract is comprised of no less than two core components: clearly outlined terms and signed agreement between two separate parties. For more information, read our 12 clauses you should include in every contract.
How should I write an effective business contract?
Contract creation can be challenging, in most cases getting legal counsel is advised to ensure it will be legally enforceable should you require that. Essentially you need basic terms which should be abided by, and an agreement on what product or service is to be provided, to whom, by whom, and what will be tendered with specific terms (such as deadlines, or how the delivery will be completed). For more tips, read our beginners guide to contract writing.
What is the difference between a contract and an agreement?
An agreement is any understanding or arrangement reached between two or more parties. A contract is a specific type of agreement that, by its terms and elements, is legally binding and enforceable in a court of law, according to Diffen.com.