October 14, 2019

October 14, 2019

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Key Aspects of Sales Representation, Agency and Distribution Agreements in Brazil

Agency, distribution and sales representation agreements are commonly used means for a business to expand its geographical reach without setting up a permanent establishment in a foreign country. While there are many elements to creating a successful commercial relationship, from a legal standpoint, knowledge of the legal framework in each target jurisdiction is essential to lower the risks of producing unintended consequences, which may ultimately affect the success of the relationship and create additional liability to your company. This becomes even more important in Latin American countries, such as Brazil, due to protective laws affecting the relationship with distributors, agents and sales representatives.

In Brazil, agency and distribution relationships are governed by Chapter XII of the Brazilian Civil Code, whereas the Brazilian Sales Representation Law (Law No. 4,886/65, amended by Laws No. 8,420/92 and No. 12,246/10), governs a sales representation relationship.

When determining the nature of the relationship, Brazilian courts will look at the facts, and not at the title of the agreement. For that reason, understanding the legal definition and characteristics of each category is fundamental.

An agency relationship will exist when an agent assumes, in a non-occasional basis and without any dependency, the obligation to promote, on behalf of another person, in exchange for remuneration, the performance of certain transactions, within a given area. A distribution relationship will exist when the agent is in the possession and control of the item to be transacted.

In contrast, a sales representative is legal entity or individual, without an employment relationship, who acts as an intermediary, in a non-eventual basis, on behalf of one or more people, for the conduct of commercial transactions, soliciting and mediating proposals or orders, to transmit them to principals, whether carrying out acts related to the performance of the transactions.

Companies should also be aware that in Brazil:

  • Oral agreements are enforceable, but not recommended due to the complexity of the relationship and potential difficulties in establishing evidence if a dispute ensues. It is important to note that although the Brazilian Sales Representation Law specifically requires sales representation agreements to be in writing, courts will consider an oral agreement to be enforceable if its existence can be established through any type of evidence admitted by law.

  • All sales representatives must register with the Regional Council of Sales Representative of domicile under a penalty of imprisonment and/or a fine. Distributors and agents are not subject to this requirement.

  • Waiver of protective laws is permitted in limited instances for agency and distribution agreements, whereas for sales representation agreements it will be invalid as a matter of public order. For example, the Brazilian Sales Representation Law prohibits any alterations that directly or indirectly imply a reduction of the average earnings received by the sales representative during the last six months.

  • Arbitration is an accepted method of dispute resolution for agency and distribution agreements. While there has been some controversy concerning its enforceability in a sales representation agreement under the argument that it would be against public policy, a recent judgement by the 38th Civil Chamber of Sao Paulo State Court of Justice upheld the validity of the arbitral agreement and competence of the arbitral tribunal to resolve the dispute[1].

  • Exclusivity is presumed in agency and distribution agreements, but not in sales representation agreements.

  • Termination obligations, such as notice and indemnification will differ according to the term and nature of the agreement and whether termination is without cause or for cause.

 If you are planning to establish an international agency, distribution or sales representation agreement in Brazil, take note:

  1. Do not rely on form agreements.

  2. Avoid oral agreements.

  3. Ensure that the activities involved match the intended relationship.

  4. Be aware of local competition and anticorruption laws, which may affect your agreement.

  5. Seek local counsel advice before initiating such relationship.


[1] TJ-SP-APL: 1024873-53.2014.8.26.0100, dated 6/21/2017.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Maria Fernanda Loll, Squire Patton, Latin American International matters Lawyer, Brazil,
Associate

Maria Fernanda works closely with lawyers of the firm's Corporate Practice Group representing the interests of international clients in matters relating to Latin America.

Maria Fernanda has been acting as accountability officer for a multinational public chemical company, responsible for review and approval of third parties in Latin America. 

Her practice as a licensed attorney in Brazil included representing domestic and international clients in civil litigation and providing advice in commercial transactions for a...

713-546-3360
Paula A. Galhardo, Squire Patton Boggs, law firm, Houston, Texas,  Brazil, legal issues, chemicals, energy, industrial and manufacturing
Of Counsel

Paula Galhardo is of counsel in Squire Patton Boggs' Corporate Practice Group and chair of the firm's Brazil Country Desk. Paula represents of a diverse range of businesses – from owner-managed groups to multinationals operating in the chemicals, energy, industrial and manufacturing sectors – in inbound and outbound international transactional matters involving Latin America, including mergers and acquisitions, international contracts, anticorruption compliance and investigations.

Paula spent the first years of her career as a business and transactional lawyer in Brazil before moving to the US in 2006. Dual qualified in New York and Brazil, Paula focuses her practice on advising US, Latin America, Europe and Asia clients on corporate transactions in numerous jurisdictions. Currently, Paula serves as regional counsel for a public chemical company in Latin America, which includes operations in Brazil, Chile, Argentina, Mexico and Colombia.

Paula also advises clients in anticorruption compliance in Latin America. She assists in the review and revision of anticorruption policies and procedures and advises Brazilian entities on FCPA compliance, including company practices, internal compliance programs, human resources concerns and remedial measures for improving compliance.

Paula serves as the Chair of the Corporate Counsel Section and Past-Chair of the International Law Section of the Houston Bar Association. She is also an active member of a number of bar and trade associations, including the Association of International Petroleum Negotiators (AIPN), Institute for Energy Law (IEL), New York State Bar Association (NYSBA), Brazilian Bar Association (OAB) and Brazil-Texas Chamber of Commerce (BRATECC).

Paula is admitted to practice in Brazil and New York. Portuguese is her first language, and she is fluent in both English and Spanish.

713-546-5855