Termination of a commercial agency

What is commercial agency?

Business agency is the case, when a trader (business agent) provides professional services, supporting the performance of the business operations of another trader (principal). The business agent (natural person or legal entity) may be authorized to conclude transactions on behalf and at the expense of the principal, but it is also possible that the agency is limited to merely providing support in the search for new clients within a certain geographic territory and preparation of transactions, which the principal concludes himself.

Important to know
Important to know

Commercial agency must be clearly distinguished from the representation, carried out by the the management body of a business company. The business agent is not part of principal’s company, but a separate, independent person and his representative powers are exclusively limited to support in the performance of the principal’s business operations.

It is possible that the business agent represents multiple traders, which are not mutual competitors.

It should be noted that the commercial agency, as regulated by the Commerce Act (CA), significantly differs from the commercial agency of foreign persons, regulated by the Investment Promotion Act. The business agent of a foreign person is not a separate legal entity, but part of the company it represents.

The relations between the principal and the business agent are regulated in a written contract, usually regulating significant matters and issues, regarding the agency – key rights and obligations of both parties, area of operation of the business agent, whether or not the business agent may conclude transactions on behalf or at the expense of the principal, the amount of the business agent’s fee, etc.

How is the commercial agency terminated?

A commercial agency is terminated upon:

Termination of the commercial agency contract.

  • The commercial agency contract may be signed for a fixed term. In this case, upon the expiration of the agreed term, the commercial agency is considered terminated. Тhe contract, signed for a fixed term may also be terminated earlier, if the party, requesting the termination, pays the other party any incurred damages. It is possible, however, that despite the expiration of the contract, the parties continue to exercise their rights and perform their obligations, as agreed in the contract. In this case, the parties will be considered to have extended their contract for unlimited time (art. 47, para. 4 of the CA).
  • The contract may also be signed for unlimited period of time. In this case, during the first year of the contract, each party may terminate it by means of a one-month written notice, and during the second year – by means of a three-month notice. Тhe parties may not agree on shorter notices, and if they agree on a longer notice, the notice period must be identical for both the principal and the commercial agent (art. 47, para. 1 of the CA). As already indicated, if upon the expiration of the contract, the parties continue to exercise their rights and perform their obligations thereunder, the contract will be extended for unlimited time. In this case, when determining the period of the termination notice, the duration of the contract until its expiration will also be taken into consideration. For example, if the contract was signed for a five-year period and after its expiration, it was extended without limitation in time, at least a three-month notice will be required for its termination.

Termination of commercial agent’s activity.

  • If the commercial agent terminates his activity, he will be required to request de-registration in the Commercial Register.
  • If the commercial agent is a natural person, it is possible to terminate the agency due to his death or compulsory judicial disability [1]. In this case the heirs or guardian must request de-registration of the representative from the Commercial Register.
  • If the commercial agent is a legal entity, the commercial agency is also terminated upon its bankruptcy. In this case the court, ordering the bankruptcy will request the de-registration of the commercial agency in the Commercial Register (art. 47, para. 6 of the CA).

What are the consequences of the termination of the commercial agency?

The business agent is entitled to a one-off compensation from the principal, if the latter continues to benefit from the client base, established by the business agent or if the business agent has significantly increased the volume of the transactions with clients. The heirs of the agent will be entitled to such compensation, if the commercial agency is terminated due to the agent’s death (art. 40 of the CA).

The trader and business agent may agree limits in the activity, to be carried out and the business agent after the termination of the contract. These arrangements must be made in writing. The limitation must cover the same area and type of goods or services, subject matter of the commercial agency contract and cannot continue for more than 2 years after the termination of the contract. In this case, the business agent should be compensated for the period of the limitation (art. 41 of the CA).

For more information
For more information

For more information on the termination of the commercial agency and the related regulatory framework, please refer to the websites of the:

[1] Judicial disability is a special regime, which the court can impose to a person, who cannot take care of himself and his business (e.g. due to a mental disorder, insufficient mental and physical maturity, etc.) persons, placed under complete judicial disability, cannot conclude transactions and bind themselves and their business is taken care of by a guardian.