Broker, Agent or Reseller: Choosing a Sales Model That Fits Thai Law

The core answer

When a business wants to sell further than its own team can reach, there are usually three routes, often called by mixed-up names: have a broker bring in customers, appoint an agent to sell on your behalf, or sell wholesale to a reseller who sells on for itself. Legally, each has a different status, different duties and different risks, and the name written in the contract does not always decide the matter. A court looks at the facts: who has authority to do what on whose behalf.

The rule (Thai law). The Civil and Commercial Code, Book III, Title 16 deals with agency (section 797 onwards) and Title 18 with brokerage (section 845 onwards). An agent has authority to act for the principal. A broker merely points out or arranges the opportunity to contract and is entitled to a fee when the contract is made. A commission agent under section 833 acts in its own name but for the principal. A reseller is neither broker nor agent, but a buyer under a sale contract who buys for itself and resells.

Our practical view. Choose the model by asking who should bear the stock, credit and reputation risk. If you do not want to bear it, let a reseller bear it, but you will control customers and price less. If you want control, use an agent, but you are liable for what the agent does within its authority and must take care over termination. If you only need to find new customers, a broker is the lightest model. A company with foreign shareholders must check the foreign business rules first.

If you already have a distributor agreement and are about to end it, read terminating a distributor agreement: stock, brand and customers. If you are thinking of expanding beyond appointing agents, read expanding with your own branches, franchising or dealers.

1. Three models, and a fourth that people forget

The table helps separate the concepts. In reality there are hybrid models, such as a distributor that buys goods but also receives brokerage on certain projects, so you must state clearly under which terms each type of income arises.

2. Brokers (sections 845 and 846)

Section 845 describes a broker as a person who agrees, for a fee, to point out an opportunity to enter into a contract or to arrange for a contract to be made. Key features

• A broker has no authority to contract for the principal. The principal decides whether to enter into the contract.
• Under section 846, the right to the fee arises once the contract that was pointed out or arranged has been made. If the contract has a condition precedent, wait until the condition is met.
• If no contract is made, a broker generally has no right to a fee, but the agreement may provide for reimbursement of expenses, which must be stated clearly.

A common dispute is where a customer introduced by the broker later contracts directly with the principal without going through the broker, or the broker claims a customer as one it brought in. The agreement should therefore set out

1. How introduced customers are recorded, for example name and date given in writing
2. How long an introduced customer is treated as the broker's
3. Whether the fee applies to repeat orders or only the first order
4. When payment is due and the effect of returns or cancellation
5. A prohibition on the broker receiving money or contracting for the principal unless authorised

3. Agents (section 797)

Section 797 provides that an agent is a person with authority to act for the principal and who agrees to do so. When an agent makes a contract within its authority in the principal's name, the effect binds the principal directly to the third party. Therefore

• The scope of authority must be clear. Can the agent contract, receive money, give discounts or accept returns? The less clear it is, the more the principal risks being bound beyond what was intended. See who can bind a company.
• Issuing a power of attorney. State the business, scope, duration and limits.
• How the agent presents itself to outsiders. If the principal lets someone use its name or present itself as an agent, a customer in good faith may claim that the principal is bound. Tell customers the scope of authority and monitor use of your name.
• Duties of the agent. Follow instructions, report, keep the principal's property separate, and avoid conflicts of interest.
• Duties of the principal. Pay remuneration and reimburse necessary expenses as agreed.

3.1 Commission agents (section 833)

A commission agent trades in its own name but for the principal, for remuneration. Unlike an ordinary agent, the customer may see the commission agent as the contracting party and not know a principal exists behind it. The contractual consequences are therefore different, and you should consult a lawyer if your model falls within this type. Both sides must understand who is liable to the customer.

4. Ending an agency (sections 826 and 827)

As a rule, the principal may revoke the agent and the agent may give notice, but if termination is at an unsuitable time and causes damage to the other side, the party ending it may be liable under the principles in sections 826 and 827. Points to know

• Thailand has no provision like the European Union's giving an agent automatic compensation when the contract ends (for example compensation for the customer base the agent built up). If wanted, it must be written into the contract.
• Damage from an unsuitable termination must be proved. It does not arise every time.
• The contract should state a notice period, grounds for immediate termination, and the effect on unpaid remuneration.
• On termination, the agent must return the principal's documents and property, and the principal must tell customers that the authority has ended.

For termination of a distributor that buys goods to sell, which is not an agent in the strict legal sense but raises similar issues, see terminating a distributor agreement.

5. Resellers

A reseller is a party to a sale contract, not the seller's agent. Therefore

• The reseller bears the risk of its own stock, price and receivables.
• The manufacturer is paid on the wholesale sale and is not liable for the reseller's decisions towards its own customers, unless it gave authority or held the reseller out as its agent.
• The manufacturer finds it harder to control the resale price and customers.
• Liability to end customers depends on who is the seller and whether the manufacturer gives a warranty directly.

A caution: a manufacturer may behave as if it controls the reseller too much, for example prescribing how to sell, to whom and what warranty to give, until the facts come close to an agency relationship or create liability to customers. The documents and the practice should therefore match the model chosen.

5.1 Resale price and competition law

Requiring a reseller to follow a set resale price (resale price maintenance) needs particular care because it may carry risk under trade competition law, depending on market power and the facts. A recommended price that the reseller need not follow is different from compulsion. Consult a lawyer before putting any price term in the contract.

6. How to choose a model

1. Who should bear stock and receivables? If you do not want to, choose a reseller.
2. How much control over price and customers do you want? If a lot, choose an agent or your own branch.
3. Do you want to be bound to customers someone brings in? If not, choose a broker.
4. Does the product involve licences or complex warranties? If so, a reseller needs clear qualifications and liability to customers.
5. Will the broker, agent or reseller be a foreign juristic person? See section 8.
6. For overseas markets, see selling into Thailand through a distributor or your own entity.

7. Terms every model should have

• A definition of status as broker, agent or reseller, with a statement that a reseller is not an agent
• Scope of authority and prohibitions
• Territory, customers and exclusivity
• Remuneration, timing, and the effect of returns
• Use of trademarks and sales materials
• Confidential information and customer data
• Term, notice, termination and consequences after termination
• Legal compliance, such as anti-bribery and personal data protection
• Governing law and dispute resolution

8. Foreign companies and the Foreign Business Act

If the person who will act as broker or agent in Thailand is a company that counts as a foreigner under the Foreign Business Act B.E. 2542, note that brokerage and agency businesses are in List Three annexed to the Act, subject to certain exceptions, which means a licence may be needed before operating. If no exception applies, check the real shareholding structure and the actual activities, because a company that appears to be held by Thai nationals while others in fact control it may face a different kind of risk. See foreign business licences for service companies and details on applying for licences.

A Thai company using a foreign broker or agent abroad that does not carry on business in Thailand should also check the law of that country and the tax conditions with its accountant.

9. Checklist

• Decide who bears stock, credit and reputation risk, then choose the model
• State the status clearly in the contract (broker, agent or reseller) and make sure it matches actual practice
• Put the agent's scope of authority in writing and tell relevant customers
• Set how brokerage customers are counted, when the fee is paid, and the effect of cancellation
• Have termination terms stating the notice period and the effect on stock, customers and trademarks
• Do not put resale price terms in without checking with a lawyer
• Check the foreign status of any counterparty that will do business in Thailand
• Consult your accountant on the tax effect of each model

Further reading

• Terminating a distributor agreement: stock, brand and customers — when the relationship has to end
• Selling into Thailand through a distributor or your own entity — for overseas manufacturers
• Foreign business licences for service companies — if shareholders are foreign
• Expanding with your own branches, franchising or dealers — comparing other ways to expand
• Who can bind a company — the scope of signing authority for a company

Before choosing a broker, agent or reseller, decide who bears stock, credit and obligations to customers, then write the contract and operate in line with that model.

We draft and review brokerage, agency and distributor contracts, and check the Foreign Business Act position. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and documents and business licences.

This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.