Commission agent agreement drafting

What is a commission agent agreement, and when do you need one?

A commission agent agreement is a contract under which a business appoints someone to find customers or orders for it, and pays them a commission on the business they bring in. In Indian law it is a contract of agency under Chapter X of the Indian Contract Act, 1872. You need one the day someone starts bringing you business for a percentage: a sales agent covering a territory, a broker introducing buyers, an agent selling a manufacturer's goods to dealers, or a carrying and forwarding (C&F) agent who stores and dispatches your stock.

Without a written agreement, the Contract Act and whatever the emails say decide the terms. Two examples show why that is risky. Under Section 219, unless the contract says otherwise, commission is not due until the act the agent was engaged for is complete. Is that the order, the delivery or the customer's payment? And under Section 237, if your conduct lets customers believe the agent has authority, you are bound by what the agent promises them.

Agent, distributor or employee?

Get the label right before drafting, because the law and the tax treatment follow it.

A del credere agent is one who agrees to make good any amount the customers it introduces fail to pay, usually for a higher commission. If your agent will do that, the agreement must say so in terms.

What we draft into the agreement

• Authority: whether the agent only canvasses orders, or can also quote prices, accept orders, collect money or sign for you.
• Territory and customers: exclusive or not, house accounts you keep, and direct or online orders from the territory.
• When commission is earned: on order, invoice or payment received; treatment of returns, bad debts and discounts; and commission on repeat orders after the agreement ends.
• Payment: the rate or slabs, monthly statements, the agent's duty to render accounts under Section 213, GST on the commission, and deduction of tax at source on commission under the Income-tax Act, 2025.
• Expenses and stock: travel, samples, and goods held by a C&F agent, including insurance and stock checks.
• Conduct: use of your brand, price discipline, confidentiality, and no competing products during the term.
• Termination: the notice period, termination for cause and the final commission settlement. Section 206 requires reasonable notice, so the agreement should fix it.
• Disputes: governing law, the city whose courts will hear a dispute, or an arbitration clause that names a seat.

We draft for the principal or for the agent. If an agent has sent you its own format, we can review it and mark the clauses that work against you.

What you send us

• Names, addresses, PAN and GST numbers of your business and the agent
• The products or services and the territory
• The commission rate or slabs, and when you intend to pay
• Whether the agent will collect money or hold stock
• Any offer letter, term sheet, earlier agreement or email thread with the terms discussed

How the drafting works

1. Brief. Fill in a short brief, or talk it through with us on a phone or video call.
2. First draft. It reaches you by email in 2 to 3 working days, with notes on the points that need your decision.
3. Revision. You and, if you wish, the agent mark it up. One round of revisions is included.
4. Final draft. You receive the final text ready for stamping, with a note on the stamp duty and how to sign.

The fee is from Rs 3,000. The work runs online from our office in Sanpada, Navi Mumbai, for businesses anywhere in India.

Stamp duty and signing

The agreement is stamped under the stamp law of the state where it is signed, usually by e-stamp or franking before signature. Duty varies by state and is paid at actuals; we tell you the amount with the draft. An unstamped agreement cannot be relied on in evidence until the duty and a penalty are paid. Registration is not normally needed.

If the agent also needs a Power of Attorney, for example to deal with government offices or banks for you, that document carries its own stamp duty.

Mistakes in agent commission terms

• Commission payable "on sales". Say whether that means order, invoice or collection, and what happens on a return.
• Silence on orders after termination. Most commission disputes start with a customer the agent introduced who keeps ordering after the agent has gone. Fix a tail period, or say there is none.
• A non-compete that runs after the agreement ends. Section 27 of the Contract Act makes it void. Rely on confidentiality and on your ownership of customer data instead.
• Letting the agent look like a signatory. Letterheads, visiting cards and email signatures that suggest authority to sign can bind you under Section 237.
• Copying a foreign format. Many online templates follow US or EU agency law, including EU-style compensation on termination, which Indian law does not supply.

Related drafting services

If you are appointing a distributor who buys and resells your goods, or an agent with wider powers to contract for you, our agency agreement drafting service fits better (from Rs 3,000). For a supplier rather than a seller, use a vendor agreement (from Rs 3,000). Before you share price lists or customer data with a new agent, a confidentiality agreement (from Rs 3,000) can be signed first.