Business Representation in Israel
The dilemma, after choosing the appropriate representative entity, is to decide whether to do business through an agent or a distributor.
The decision depends on the amount of control the foreign entity wishes to exercise over the distribution business and the economic risk it is willing to assume. The agent is obliged to follow the directives of his principal, while a distributor is subject to less control and may shield the foreign entity from customer’s claims since he acts in his own name and for his own account.
In simple terms, the main difference between them :
Distributors generally purchase the manufacturer’s products and agents don’t.
While many foreign companies work through Israeli agents and distributors, they aren’t always informed of the legal implications of entering into relationships with distributors or agents in Israel, or the rights and obligations related to ending relationships.
Israel has no specific laws dealing with “commercial agents” and distributors, unlike many European countries which have developed specific statutory regulations on the subject. However, aspects such as the form of contract, rights and duties of each of the parties, termination and compensation procedures, frequently show similarities to European countries.
However, because there is no specific Israeli legislation for determining the duration of the advance termination notice, the courts make their decisions on a case-by-case basis while taking into account the principles of Israeli contract law.
It is therefore of good policy to use the services of an experienced and knowledgeable local lawyer during negotiations and the contract preparation.
In business practice, the terms “commercial agent” or “sales representative” are not confined to agency in the legal sense, but are used to describe a variety of commercial representatives, e.g., a legal or commercial agent, an employee or a distributor. (see definitions)