How to Create an Agency Agreement: Key Clauses Explained

How to Create an Agency Agreement

Creating an agency agreement is a crucial step in formalizing the relationship between a principal and an agent. This legal document outlines the rights, responsibilities, and obligations of both parties, ensuring clarity and protection for each side. Here’s a comprehensive guide on how to create an agency agreement, detailing all key clauses.

1. Introduction

An agency agreement establishes a legal relationship where the principal grants the agent the authority to act on their behalf. This document is essential in business transactions, as it provides a framework for how the agent will represent the principal, the scope of their authority, and the terms under which they will operate.

2. Key Clauses of an Agency Agreement

a. Parties Involved

This clause identifies the principal and the agent. It should include:

  • Full legal names of both parties
  • Addresses and contact information
  • Any relevant business identification numbers

b. Purpose of the Agreement

This clause outlines the general purpose and scope of the agreement. It should describe:

  • The nature of the business or transactions
  • The specific tasks or roles the agent will undertake

c. Authority Granted

Clearly define the scope of the agent’s authority. This clause should specify:

  • What actions the agent is authorized to perform
  • Any limitations on the agent’s authority
  • Any actions that require the principal’s prior approval

d. Duration of the Agreement

This clause sets the term of the agreement. It should include:

  • The start date and end date of the agreement
  • Conditions for renewal or extension
  • Circumstances under which the agreement can be terminated early

e. Compensation

Detail how the agent will be compensated for their services. This clause should cover:

  • The basis of compensation (e.g., commission, fixed fee, hourly rate)
  • Payment terms and schedule
  • Reimbursement for expenses

f. Duties and Responsibilities

This clause outlines the specific duties and responsibilities of both the principal and the agent. It should include:

  • The agent’s obligations in representing the principal
  • The principal’s obligations in supporting the agent
  • Standards of performance

g. Confidentiality

This clause ensures that both parties maintain the confidentiality of sensitive information. It should address:

  • Definition of confidential information
  • Obligations to protect confidential information
  • Duration of the confidentiality obligation

h. Non-Compete Clause

This clause restricts the agent from engaging in activities that compete with the principal’s business. It should specify:

  • The duration of the non-compete obligation
  • The geographical scope
  • The specific activities that are restricted

i. Termination

Detail the conditions under which the agreement can be terminated. This clause should cover:

  • Grounds for termination (e.g., breach of contract, insolvency, mutual agreement)
  • Notice period required for termination
  • Obligations upon termination

j. Dispute Resolution

Specify how disputes will be resolved. This clause should include:

  • Preferred methods of dispute resolution (e.g., mediation, arbitration)
  • Jurisdiction and governing law
  • Procedures for initiating dispute resolution

k. Indemnity

This clause outlines the indemnification obligations of each party. It should address:

  • Circumstances under which indemnity is required
  • The extent of indemnification
  • Any limitations on indemnity

l. Intellectual Property

If the agent will use the principal’s intellectual property, this clause should cover:

  • The scope of use of intellectual property
  • Ownership rights
  • Obligations to protect intellectual property

m. Amendments

Specify how the agreement can be amended. This clause should include:

  • The process for proposing amendments
  • Requirements for written approval of amendments

n. Entire Agreement

This clause states that the agreement constitutes the entire understanding between the parties. It should clarify:

  • That all prior agreements are superseded
  • That no other representations are binding

3. Drafting Tips

When drafting an agency agreement, keep the following tips in mind:

  • Use clear and concise language
  • Avoid legal jargon where possible
  • Be specific about the terms and conditions
  • Seek legal advice to ensure compliance with relevant laws and regulations
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4. Sample Agency Agreement Template

Here is a basic template to help you get started:

Agency Agreement

This Agency Agreement (“Agreement”) is made on [Date], by and between:

Principal: [Full Legal Name], located at [Address]

Agent: [Full Legal Name], located at [Address]

1. Purpose

The Principal appoints the Agent to act on their behalf for the purpose of [describe the purpose].

2. Authority

The Agent is authorized to [describe the specific actions the agent can perform], subject to the following limitations: [list any limitations].

3. Duration

This Agreement will commence on [Start Date] and continue until [End Date], unless terminated earlier as provided herein.

4. Compensation

The Principal agrees to compensate the Agent as follows: [describe the compensation structure].

5. Duties and Responsibilities

The Agent agrees to [list specific duties]. The Principal agrees to [list specific duties].

6. Confidentiality

Both parties agree to maintain the confidentiality of [describe confidential information].

7. Non-Compete

The Agent agrees not to [describe non-compete restrictions] for a period of [duration] in [geographical area].

8. Termination

This Agreement may be terminated by either party upon [number] days’ written notice. Grounds for termination include [list grounds].

9. Dispute Resolution

Any disputes arising under this Agreement will be resolved through [describe dispute resolution process].

10. Indemnity

Each party agrees to indemnify the other under the following circumstances: [describe indemnification terms].

11. Intellectual Property

The Agent is granted a limited license to use the Principal’s intellectual property as follows: [describe terms].

12. Amendments

This Agreement may be amended only by written agreement signed by both parties.

13. Entire Agreement

This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements.


Creating a well-drafted agency agreement is essential for protecting the interests of both the principal and the agent. By including detailed clauses on authority, compensation, confidentiality, and more, both parties can ensure a clear and mutually beneficial relationship.

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FAQs on Creating an agency agreement

What is an agency agreement?

An agency agreement is a legal contract between a principal and an agent, outlining the agent's authority to act on behalf of the principal. It specifies the duties, responsibilities, and compensation of the agent, as well as the terms under which the agreement operates.

Why is an agency agreement important?

An agency agreement is important because it provides a clear framework for the relationship between the principal and the agent. It helps prevent misunderstandings, defines the scope of the agent's authority, and protects the interests of both parties.

What should be included in the authority clause?

The authority clause should specify the actions the agent is authorized to perform, any limitations on their authority, and any actions that require the principal's prior approval. This ensures that the agent understands the extent of their power and prevents unauthorized actions.

How is compensation typically structured in an agency agreement?

Compensation can be structured in various ways, including a commission based on sales, a fixed fee, an hourly rate, or a combination of these. The agreement should clearly outline the basis of compensation, payment terms, and any reimbursement for expenses.

What is the purpose of a confidentiality clause?

A confidentiality clause ensures that both parties maintain the confidentiality of sensitive information shared during the course of the agreement. It protects proprietary information, trade secrets, and other confidential data from unauthorized disclosure.

What is a non-compete clause?

A non-compete clause restricts the agent from engaging in activities that compete with the principal's business during and sometimes after the term of the agreement. It specifies the duration, geographical scope, and restricted activities to protect the principal's interests.

How can an agency agreement be terminated?

An agency agreement can be terminated based on the conditions outlined in the termination clause. This may include breach of contract, insolvency, mutual agreement, or other specified grounds. The clause should also specify the notice period required for termination.

What is the role of a dispute resolution clause?

The dispute resolution clause outlines the methods for resolving any disputes that arise under the agreement, such as mediation or arbitration. It also specifies the jurisdiction and governing law, providing a clear process for addressing conflicts.

Why is an indemnity clause important?

An indemnity clause outlines the circumstances under which one party will compensate the other for any losses or damages. It helps protect both parties from potential liabilities arising from the actions of the other party.

What should be included in the intellectual property clause?

The intellectual property clause should specify the scope of use of the principal's intellectual property by the agent, ownership rights, and obligations to protect the intellectual property. It ensures that the principal's intellectual property is used appropriately and protected.

How can an agency agreement be amended?

An agency agreement can be amended only by written agreement signed by both parties. The amendment clause should outline the process for proposing amendments and obtaining written approval, ensuring that any changes are mutually agreed upon.

What is the significance of the entire agreement clause?

The entire agreement clause states that the agreement constitutes the complete understanding between the parties, superseding all prior agreements. It ensures that no other representations or agreements are binding unless included in the written contract.

What happens if there is a breach of contract?

If there is a breach of contract, the non-breaching party may seek remedies as outlined in the agreement, which could include termination, damages, or specific performance. The dispute resolution clause will also guide the process for addressing the breach.

How can parties ensure compliance with the agreement?

Parties can ensure compliance by clearly outlining the duties, responsibilities, and standards of performance in the agreement. Regular communication, monitoring performance, and addressing any issues promptly can also help maintain compliance.

Why is legal advice important when drafting an agency agreement?

Legal advice is important to ensure that the agency agreement complies with relevant laws and regulations, protects the interests of both parties, and addresses any potential legal issues. A lawyer can help draft clear and enforceable clauses and provide guidance on any legal complexities.