How to Draft a Sales Representative Agreement

Sales representatives sell your goods or services and earn a percentage of the sale as a commission. If you want to use sales representatives, then you need to draft an agreement for you and the representative to sign. A solid sales representative agreement will explain the representative’s duties and how his or her commission is calculated. Ideally, you should also protect yourself by including provisions that limit your exposure to lawsuits.

Part 1

Part 1 of 5:

Beginning the Agreement

1
Format your document. You want the agreement to be readable so that the sales representative fully understands the terms. Open a word processing document and set the font to a comfortable size and type. Times New Roman 12 point works for many people.
- You probably will hire more than one sales representative, so you should set up your agreement as a template. Insert blank lines for information that will change with each contract, such as the name of the sales rep and the date.
Center “Sales Representative Agreement” between the right- and left-hand margins. You want the title to stand out, so put it in all caps, bold, and underlined.
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3
Identify yourself and the sales representative. In the opening paragraph of the agreement, you should identify the parties. Also state the date you are signing the agreement and the business location of each party.
- Sample language could read: “This Agreement is made on [insert blank line for date], by and between [insert your company’s name], which has a primary business address at [insert address] (‘Company’) and [insert blank line for sales representative’s name], an individual with a primary residence at [insert blank line for address] (‘Sales Representative,’ ‘Representative’).”
4
Add your recitals. Your recitals summarize why each party is entering into the agreement. Recitals can be fragment sentences and are often introduced with the word “Whereas.” Your recitals could read:
- “Whereas, Company is engaged in the business of [insert your business] (‘Products’); Company desires to retain Sales Representative, and Sales Representative desires to be retained, as Company’s sales representative within the territory and upon the terms and conditions set forth herein. Therefore, the parties, for good and valuable consideration, hereby agree as follows.”
5
Include a definitions section. You should define any terms that might be unclear to the sales representative or to a judge. You can draft this section last. Once you have completed a draft, go through the entire document and check for any words that may be unclear.
- You should certainly define “territory” and “confidential information,” since those are critical terms in your agreement.
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Part 2

Part 2 of 5:

Defining the Scope of the Agreement

1
Appoint the sales representative. You should include a provision where you explicitly appoint the sales representative. If the representative will be your exclusive rep in the territory, then clarify that.
- You could write: “Company appoints Representative, and Representative accepts the appointment, to act as Company’s sales representative in the Territory for the sale of the Products during the Term.”^{[1]XResearch source}
2
Define the representative’s territory. Your rep might only service a certain geographical location. If so, then you should define that territory. Even if you define the territory in this clause, you still should include a definition of “territory” in the definitions section.
- If you want the representative to work the entire U.S., then you could define territory this way: “The term ‘Territory’ shall mean the United States of America.”
3
Clarify that the rep is an independent contractor. You don’t want the representative to be confused as to whether he or she is an employee, so explicitly state that they are an independent contractor. Also clarify that you are not creating a partnership or other joint venture with the sales representative.
- For example, you could write: “The parties agree that Representative is an independent contractor, and not an employee, of Company. This Agreement does not create a partnership, joint venture, or agent-principal relationship between the parties. Neither the Representative nor any directors, officers, employees or agents shall represent themselves as an agent, partner, or employee of Company.”^{[2]XResearch source}
4
List the sales representative’s duties. You should think carefully about what you want the sales representative to do. Of course, some duties are obvious: sell your goods to consumers. However, you should be as comprehensive as possible. For example, you might want to include the following duties:
- Sell a minimum number of products/accounts.
- Place sales orders with you on forms that you provide the sales representative.
- Use best efforts to aggressively solicit customers.
- Follow state and local laws so that the sales representative is qualified to do business.
- Consult with you about advertising.
- Follow your pricing list (i.e., not set its own prices).
5
Tell the representative when to submit written reports. Explain how often reports should be submitted. For example, you could receive sales reports every month or every quarter. You also should generally state what should be in the reports, such as sales and potential sales.
- For example, you could request: “Within fifteen (15) days of the close of each calendar month, Representative shall submit to Company a written report setting forth the following: sales for that month, potential sales in the future, information about the commercial conditions in the Representative’s territory, and any other necessary information.”^{[3]XResearch source}
6
Explain how the representative’s compensation is calculated. Typically, sales representatives are paid on a commission, which means that they receive a percentage of each sale. You should spell out how you will calculate the commission. If the calculation is complicated—for example, you will give bonuses for certain benchmarks met—then you can include the explanation of commissions in an attachment, titled “Exhibit A.”
- Also reserve a right to revise the commission schedule: “Company shall have the right to revise said schedule from time to time, upon fifteen (15) days prior written notice to Sales Representative.”
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Part 3

Part 3 of 5:

Explaining Termination

The agreement can last however long you want it to last. However, it is pretty standard to set up an agreement to last one year. Also explain how you can renew the agreement once it expires.
2
Explain how to terminate for good cause. If either party breaks the agreement, then the other party might want to terminate. You should explain how either party can terminate the agreement, e.g., by sending written notice.
- For example, you might write, “Either party shall have the right to terminate this Agreement for ‘good cause’ upon ten (10) days’ advance written notice to the other party setting forth the breach. The term ‘good cause’ means a breach of any obligation under this Agreement.”
3
Explain the effect of termination. You should clarify that if the agreement is terminated, the sales representative must return the confidential information to you. You also should say something to the effect that you will pay any commission that was earned before the termination.
- You could write: “Termination of this Agreement for any reason does not affect the obligations that have accrued as of the date of termination. Representative shall return to Company any Confidential Information, and Representative’s limited license to use Company’s intellectual property ceases immediately.”^{[4]XResearch source}
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Part 4

Part 4 of 5:

Protecting Your Rights

1
Clarify that you own the intellectual property. You don’t want the sales rep to think that because he or she is selling your goods that they own rights to your intellectual property. Clarify that you are the sole owner.
- You could write, “Company shall at all times own and retain all intellectual property rights in Products. Company grants Representative a limited license to use Company’s name and trademarks in order to market and sell the Product.”^{[5]XResearch source}
2
Include a non-disclosure agreement. You should get the rep to agree not to divulge confidential information, including sales plans, customer lists, trade secrets, or other information that has value. If the sales rep violates this agreement, then you can sue. You could include the following non-disclosure agreement:
- “In the course of business, it may be necessary for Company or Company’s customers to disclose Confidential Information. Company is the sole owner of this Confidential Information. Nothing in this Agreement shall be construed as conferring to Sales Representative any rights in the Confidential Information, except for the use as expressly provided in this Agreement. Representative shall hold the Confidential Information in strictest confidence for the sole and exclusive benefit of Company. Representative shall not, without prior written consent, use the Confidential Information for its own benefit or disclose it to others, and Representative shall disclose the Confidential Information only to employees with a need to know if such employees have executed an agreement imposing the substantially same duty to respect the confidentiality of the information as that imposed on Representative.”^{[6]XResearch source}
3
Add an indemnification agreement. If the sales representative is sued, then you might also be added as a defendant. For example, the representative could be sued for misrepresenting a product. In this situation, an indemnification agreement will protect you.
- The following is an acceptable indemnification clause: “Each party hereby indemnifies and agrees to hold harmless the other party and its affiliates, successors, and assigns, and its directors, officers, and employees against any claims, loss, demands, damages, costs, penalties, causes of action, judgments, attorney’s fees or any other expense incurred in connection with a party’s actions or failure to act or any breach of a term of this Agreement.”^{[7]XResearch source}
4
Include a limitation on liability provision. If the sales representative sues you, you can try to limit what kinds of damages they can get in court. You should include a limitation on liability provision and exclude any special or consequential damages.
- Your provision might read: “Regardless of the basis on which a party may be entitled to recover damages from the other party, the aggregate liability under this agreement is limited to actual, direct damages. The amount cannot exceed the total amount of commissions paid by the Company to the Representative for the six-month period preceding the event that give rise to the dispute. The liable party in no event shall be liable for indirect, incidental, special, or consequential damages, including lost savings, business opportunities, profits, or business advantages, even if the party has been advised in advance of the probability of these damages.”^{[8]XResearch source}
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Part 5

Part 5 of 5:

Finalizing the Agreement

1
Add a notice provision. You should tell the other party where to send written notice to you. You can also specify how notice should be delivered. For example, you might want a fax sent to a certain number or you might want to receive a letter delivered certified mail.
- Your provision could read: “Any notice required by this Agreement shall be in writing and mailed by registered or certified mail, return receipt requested, to the other party at the address listed on the first page. The notice will be deemed delivered on the date of receipt or upon attempted delivery if acceptance is refused.”
2
Include a choice of law provision. You should state in your agreement what law will govern the contract. Typically, you should choose the law of the state where you are located.
- Your provision could read: “This Agreement is subject to the laws of the State of Florida.”
3
Add a severability clause. If a judge or arbitrator finds that one provision of the agreement is not enforceable, then the rest of the agreement could be voided. To prevent this from happening, you can include a severability clause. This clause will state that the remainder of the agreement should remain in force even if one provision is voided.^{[9]XResearch source}
- A sample severability clause could read: “If any provision is prohibited or found unenforceable, then the remaining provisions shall remain in force.”
4
Include a merger clause. You want to state that your written agreement with the sales representative contains all of the agreements between the two of you. You don’t want the rep to come forward claiming that there was a prior oral agreement that differs from the written agreement. Your merger clause can prevent this.
- A standard merger clause reads: “This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It supersedes all prior negotiations, representations, understandings, and agreements, if any. Furthermore, neither this Agreement nor any provision may be modified, waived, or terminated orally, but only by a writing signed by both parties.”
5
Remember to add an arbitration clause. You can resolve disputes outside of court if each side agrees to arbitration. If you include an arbitration agreement in your contract, then it will be enforced if a dispute arises between you and the sales representative. Arbitration is like a trial except you present your dispute to one or more arbitrators. Arbitration is private and generally faster than a lawsuit.
- Your arbitration provision could read: “Any controversy or claim that arises out of this Agreement, or is related to it, shall be submitted to final and binding arbitration before the American Arbitration Association, under its Commercial Rules. Judgment upon the award may be entered in any court having jurisdiction.”
6
Insert signature blocks. You should include lines for both you and the sales representative to sign. Include a line for the date, printed name, signature, and title.
- Just above the signature lines, include this language: “In witness whereof, the parties hereto have executed this Agreement as of the date set forth in the first paragraph.”^{[10]XResearch source}
7
Show your draft to a lawyer. This article describes a basic sales representative agreement. Depending on your circumstances, you may need to add different provisions. You should meet with a qualified attorney who can listen to you describe your needs and recommend changes to the agreement.
- You can find a qualified lawyer by contacting your local or state bar association. Call and schedule a consultation.
8
Negotiate with the representative over changes. The sales representative should read the agreement before signing. If he or she has suggested changes, then you should discuss them. Don’t agree to anything that you don’t want to.
- After each side signs the completed agreement, you should give the sales representative a copy.
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