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7. Other alternatives for operating in Spain

7.7. Distribution, agency, commission agency and franchising agreements

There are various ways to operate in Spain without having to set up a company or enter into an association with other existing entities or establish a physical center of operations in Spain, including most notably the following.

7.7.1. Distribution agreements

Distribution agreements are an interesting alternative to forming a company or branch or entering into commercial cooperation agreements with previously existing businesses given the low initial investment required. There are several types of distribution agreement. Given the current lack of specific legislation on this area, many such agreements allow the parties broad discretion to decide on their contents.

In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

  • Concept: Under a distribution agreement, one of the parties (the distributor) undertakes to purchase goods belonging to the other party for resale.Distributors are legal entities that form an intrinsic, albeit not truly integrated, part of the commercial network of the supplier, united by a business relationship and a shared desire to increase sales.
  • Classification: There are three main categories according to the types of distribution networks or system:
    • Commercial concession or exclusive distribution agreements: The supplier not only undertakes not to provide his products to more than one distributor within a specified territory, but also not to sell those products himself within the territory of the exclusive distributor.
    • Sole distribution agreements: The only difference between sole and exclusive distribution agreements is that under a sole distribution agreement, the supplier reserves the right to supply the agreed products to users in the territory in question.
    • Authorized distribution agreements under the selective distribution system: Owing to their nature, certain products require special treatment by distributors and sellers. The form of distribution used in both cases is called “selective distribution”, so-called because distributors are carefully selected on the basis of their capacity to handle technically complex products or to maintain a particular image or brand name.

7.7.2. Agency agreements

  • Concept: Article 1 of Agency Agreements Law 12/1992 transposed Directive 86/653/EEC into Spanish law and provides the following definition of agency agreements:

    “Under an agency agreement, an individual or legal entity, known as an agent, agrees with another on a continuous or regular basis, in exchange for remuneration, to promote commercial acts or transactions for the account of another or to promote and conclude them for the account and in the name of others, as an independent intermediary and without assuming the risk and hazard of such transactions, unless otherwise agreed.”

    Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more principals.An agent must, of his own accord or through his employees, negotiate and, if required by contract, conclude on behalf of the principal, the commercial acts or operations he is instructed to handle. Agents are subject to a number of obligations, including the following:

    • An agent cannot outsource his activities unless expressly authorized to do so.
    • An agent is authorized to negotiate the agreements or transactions detailed in the agency agreement but can only conclude them on behalf of its principal when expressly authorized to do so.
    • An agent may act on behalf of several principals, unless the related goods or services are similar or identical and competing, in which case express consent is required.
  • Restraint-of-trade provisions: Restraint-of-trade provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years as from termination of the agency agreement. However, if the agency agreement has been agreed to for a shorter period of time, the restraint-of-trade provision may not last longer than one year.
  • Obligations of the principal:
    • To act loyally and in good faith in its relations with the agent.
    • To provide the agent with all the documentation he needs to engage in his activity.
    • To provide the agent with all the information required to perform the agreement.
    • To pay the agreed compensation.
    • To accept or reject transactions proposed by the agent.
  • Compensation: One of the essential elements of the agency agreement is that the agent’s work must always be compensated. The compensation may consist of a fixed amount, a commission or a combination of both systems.

7.7.3. Commission agency agreements

  • Concept: This is the mandate under which the authorized agent (commission agent) undertakes to perform or to participate in a commercial act or agreement on behalf of another (the principal). Commission agents may act:
    • In their own name, acquiring rights against the contracting third parties and vice versa.
    • On behalf of their principal, who acquires rights against third parties and vice versa.
  • Main obligations of commission agents:
    • To protect the interests of their principals as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
    • To account for amounts that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
    • In general, commission agents are not liable to their principal for the performance of the related agreements by third parties, although this risk can be secured by a commission del credere.
    • Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to sell, and from selling the goods that they have been instructed to buy.
  • Commission: The principal undertakes to pay a commission and to respect the retention and preference rights of the commission agent. The claims of the commission agent against the principal are protected by the right to retain the goods.

Differences and similarities between agency agreements and commission agency agreements

  • Main similarity: in both cases, an individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former‘s intermediary in concluding the transaction.
  • Main difference: agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

7.7.4. Franchising

  • Concept: Franchising is a system for marketing goods and/or services and/or technology. It is based on close, ongoing cooperation between independent undertakings (the franchisor and its individual franchisees). Under this system, the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity previously carried out by the former with sufficient experience and success, using the concept and system defined by the franchisor.

    In return for a direct and/or indirect consideration, this right entitles and obliges individual franchisees to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the franchisor by contract.

    Commercial concession or exclusive distribution agreements will not necessarily be considered franchises where an entrepreneur undertakes to acquire products (usually brand products) under certain exclusive rights in an area in order to resell them, again under certain conditions, as well as to offer after-sale services to purchasers of the products.In addition, the following are not considered to be franchises: (i) the grant of a manufacturing license, (ii) the licensing of a registered trademark to be used in a particular area, (iii) transfers of technology or (iv) a license to use a commercial emblem or logo.

  • Legislation: The applicable Spanish legislation is (i) Law 7/1996, of January 15, regulating retail trade, regarding the basic conditions for carrying on franchise activity and creating the Register of Franchisors (as amended by Law 1/2010, of March 1); (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register of Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulation (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements and concerted practices and Regulation (EC) no. 1400/2002, of July 31, 2002, for the motor vehicles sector.
  • Registration:
    • Royal Decree-Law 20/2018 of December 8, 2018, eliminates the Register of Franchisors. In accordance with Royal Decree 553/2019, of September 27, 2019, the only current requirement is for the franchisor – at least 20 business days prior to the signature of any franchise agreement or preliminary agreement or the delivery by the future franchisee to the franchisor of any payment – to deliver to the future franchisee in writing the information it needs to be able to decide in a free and informed manner whether it will join the franchise network and, in particular, (i) the main identifying particulars of the franchisor, (ii) a description of the sector of the business being franchised, (iii) the experience of the franchise company, (iv) the contents and characteristics of the franchise and its operation, (v) the structure and scope of the network, and (vi) the essential elements of the franchise agreement.
  • Types of franchising agreement: Industrial franchising agreements (for the manufacture of goods), distribution franchising agreements (for the sale of goods) and service franchising agreements (relating to the provision of services).

    The advantages offered by a franchising agreement include the fact that a franchising agreement is a form of product and/or service distribution that enables a uniform distribution network to be swiftly created with limited investment. Franchising also enables independent traders to set up installations more rapidly and with greater chances of success than if they did so themselves without the know-how and assistance of the franchisor.

    Antitrust law requirements must be thoroughly considered when defining the content of franchising agreements.

According to the experts, franchising has seen spectacular growth in Spain in recent years, giving rise to what is now a well-established franchising system.