Meaning
Commercial arrangement labeled as agency where the intermediary actually bears financial or operational risks. Non genuine agency occurs when the person acting as an agent takes title to goods or pays for transport and insurance without reimbursement. Competition authorities view these setups as independent distributorships rather than extensions of the principal.
Risk Assessment
Scrutiny focuses on who absorbs the loss for unsold stock or damaged inventory. In a case of non genuine agency, the intermediary might be forced to purchase a minimum quantity of goods for their own account. Monetary exposure removes the price-fixing exemptions that normally apply to true agents.
Monetary Consequence
Monetary penalties apply when pricing restrictions are imposed by the principal. Because non genuine agency is treated as a relationship between two independent businesses, any attempt to dictate the final resale price constitutes vertical price maintenance. Violations lead to heavy fines and the invalidation of the entire distribution agreement.
Contractual Correction
Realignment of duties is necessary to maintain the desired legal status. To avoid the label of non genuine agency, the principal must resume responsibility for inventory financing and customer credit risks. Clear accounting separation between the principal’s revenue and the agent’s fee helps prove the true nature of the bond.
Regular audits of the relationship ensure that the agent does not inadvertently take on risks that would compromise the legal structure of the agreement.
