ContractsCounsel Logo

Commission Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 10,509 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Types of Contracts Commission Agreement

Jump to Section

A commission agreement is used when an individual or business sells for or introduces clients to any third party to receive any commission for the sale. Generating some sales through commission is an excellent way to earn some extra cash. Yet, the interested parties must make sure that their rights are protected and that their revenue streams are secured. This is why these people need a contract to formalize this agreement. Let us learn more about the important aspects of a commission agreement below.

Important Clauses in a Commission Agreement

A commission agreement can be different based on the specific region in the United States. However, it does include certain common clauses like:

  • Agency: Either party always appoints an agent and gives the person some exclusive or non-exclusive rights. This particular clause always covers the basic information about the specific nature of the work. It may also talk about the purpose for which the commission agreement was signed by both parties.
  • Independent Contractor: This clause verifies whether the relationship is of an independent contractor for multiple parties.
  • Duties: This clause shall always lay down the duties of the associated agent or the employees of the company, as the case may be anywhere in the United States.
  • Insurance: The agent will carry liability insurance under this particular clause. It is usually related to the product, service, or property for which the commission agreement was signed.
  • Obligation: It is an important commitment that needs to be carried out by both parties after they sign the agreement.
  • Compensation and Benefits: It shall include all the related terms and conditions applicable under the commission agreement as mutually agreed between the parties.
  • Expenses: It shall lay down all the expenses to be reimbursed to the respective agent or any other party as part of the commission agreement.
  • Term: According to this clause, the commission agreement shall expire within a specific time unless the earlier terms are renewed.
  • Post-termination: Either party must not disclose confidential information about the terms and conditions of the agreement without prejudice.

Note: Check out this sample commission agreement for your reference.

Benefits of a Commission Agreement

A commission agreement offers several advantages for both the business and the sales representative. These include:

  • Aligning Expectations: A commission agreement establishes expectations between both parties. It defines all the professional objectives that each party is committed to achieving. That is why it leads to a better mutual understanding of expectations and expected results.
  • Giving Motivation and Commitment: An objectives clause in the commission agreement can motivate both parties to surpass themselves and give their best by setting precise objectives. It stimulates commitment by giving employees targets to reach and making them accountable for their respective missions.
  • Doing Performance Evaluation: The objectives defined in the agreement always enable an individual’s performance to be assessed objectively. They provide a measurable criterion to assess each employee's achievements and contributions. This makes it easier to evaluate performance during annual appraisals or periodic reviews.
  • Aiding in Professional Development: The same agreement can further encourage professional development by setting targets for skill enhancement. It can also encourage employees to undergo training and acquire new skills. They can develop professionally to achieve the objectives set by the respective business.
Meet some lawyers on our platform

Alan B.

10 projects on CC
CC verified
View Profile

Ken S.

6 projects on CC
CC verified
View Profile

Bryan B.

257 projects on CC
CC verified
View Profile

Haroldo M.

1 project on CC
CC verified
View Profile

Things to Keep in Mind When Working on a Commission Agreement

A particular business's commission plan always forms the foundation of the official commission agreement. Everyone wants the final contract to be efficient enough to cover all kinds of potential scenarios that could arise during the agreement's course.

That is why either party should keep the following things in mind when working on a properly drafted agreement:

  • Earning the Commission: The commission agreement should spell out exactly when the respective sales representatives earn their commission. For example, depending on the circumstances of the sale, there can be a big difference between crediting a sales agent with commissions when an order is booked and when the order is paid for.
  • Paying the Commission: The commission agreement should also state when the amounts are to be paid to the respective parties. This further includes specifying the respective date up to which the particular amount of each payment is going to be calculated. For example, the said legal agreement might state that commissions are to be paid on the 30th of every month. It must also specify each commission payment, which includes the specific amounts earned as of the seventh of each month.
  • Analyzing the Consequences: Refunds, cancellations, or default of payment always have consequences, doesn't it? Every sale a business makes is a final one in the world of sales. Yet, several events can happen to turn a sale into a sale, as is known to several business owners. That is why the commission agreement always needs to account for any of these situations. This also involves analyzing the impact they may have on commissions. It does not matter whether the agreement is about the return of a product for a refund, a customer who defaults on payment, or the cancellation of an order.
  • Knowing the Commission Formula: The commission agreement should always give details of all aspects of the commission structure. This will be regardless of whether the sales representative is paid a salary plus commissions or remains under a commission-only compensation plan. The details related to the same should include the amount the said representative is to be paid for each sale they make. It must also be the equation used to determine the sales amount on which that said commission is calculated.
  • Checking the Performance Incentives: Many small and large businesses offer their sales representatives incentives to motivate them to achieve more sales. The best examples include giving bonuses on reaching a specific number of sales and implementing a commission structure where the percentages paid out are tiered.

Key Terms for Commission Agreements

  • Commission Structure: A system in the sales industry that usually details how different companies compensate their sales associates.
  • Gross Margin: The percentage of a particular company's revenue that is often retained after direct expenses have been subtracted.
  • Indemnity Clause: This term requires one party to reimburse the other to recover all kinds of damages from third-party claims.
  • Documentation: Any written form of communication that defines a product, service, or any other kind of entity.
  • Additional Bonuses: An extra amount of money given to the sales representative for showing good performance or doing additional tasks.

Final Thoughts on Commission Agreements

A commission agreement always sets out the details of the specific amount to be paid by the particular business. It usually goes to their respective sales representatives. Everyone must have such a legal document in place that may further help protect the business from any kind of liability in the future. If that is not enough, the sales representative also benefits from the same agreement because they get their salaries and bonuses on time. However, everyone must follow caution when drafting the commission agreement to avoid missing out on things or making errors. An experienced attorney can surely help both parties with this particular document.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, Click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

Need help with a Commission Agreement?

Create a free project posting

Meet some of our Commission Agreement Lawyers

Michael M. on ContractsCounsel
View Michael
4.9 (291)
Member Since:
September 10, 2022

Michael M.

Free Consultation
Los Angeles, CA
37 Yrs Experience
Licensed in CA

www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.

Jeremiah C. on ContractsCounsel
View Jeremiah
5.0 (40)
Member Since:
March 5, 2021

Jeremiah C.

Partner/Attorney at Law
Free Consultation
16 Yrs Experience
Licensed in NV, TX
Thomas Jefferson

Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

Ryenne S. on ContractsCounsel
View Ryenne
4.9 (364)
Member Since:
October 11, 2022

Ryenne S.

Principal Attorney
Free Consultation
Chicago, IL
14 Yrs Experience
Licensed in IL
DePaul University College of Law

My name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.

Damian T. on ContractsCounsel
View Damian
Member Since:
January 29, 2024

Damian T.

Founding Partner
Free Consultation
Albuquerque, NM
2 Yrs Experience
Licensed in NM
New York University School of Law

Damian is a founding partner of Holon Law Partners. He began his career as an officer in the Marine Corps, managing legal affairs for his command in Okinawa, Japan. In this role, he conducted investigations, assembled juries for courts martial, and advised his commander on criminal justice matters. Damian was twice selected to serve as his unit’s liaison to the Japanese government and self-defense forces. Damian later worked as a transactional attorney in New York, where he handled commercial real estate, finance, and restructuring matters. He has also participated in insider trading investigations at the SEC, worked on compliance at a private equity firm, and managed legal operations and special projects at a vertically integrated cannabis company in New Mexico. Damian draws on these diverse experiences to provide his clients with creative solutions to thorny legal issues – from negotiating commercial leases to managing complex securities offerings. In addition to practicing law, Damian volunteers as a research assistant at the University of New Mexico Medical School’s McCormick Lab – studying the microbiology of longevity and aging. When not working, he enjoys spending time with his two pit bulls and pursuing his passions for foreign languages, art, philosophy, and fitness. Damian resides in Albuquerque, New Mexico.

Jonathan F. on ContractsCounsel
View Jonathan
Member Since:
January 28, 2024

Jonathan F.

Senior counsel
Free Consultation
St. Louis, Missouri and The Villages, Florida
32 Yrs Experience
Licensed in MO
Saint Louis University School of Law

Trial and transactional attorney with over 30 years experience with complex business transactions and disputes.

Aaron S. on ContractsCounsel
View Aaron
Member Since:
January 28, 2024

Aaron S.

Free Consultation
Los Angeles, CA
5 Yrs Experience
Licensed in CA, TX
University of Texas School of Law

My passion is protecting the passions of others. I have 5+ years of contract review, and all aspects of entertainment law including negotiation, mediation, intellectual property, copyright, and music licensing. I also have experience working with nonprofits, and small businesses helping with formation, dissolution, partnerships, etc. I am licensed in both Texas and California.

Nuo Jia (Lois) L. on ContractsCounsel
View Nuo Jia (Lois)
Member Since:
February 7, 2024

Nuo Jia (Lois) L.

Managing Member
Free Consultation
New York
10 Yrs Experience
Licensed in MI, NY
University of Detroit Mercy

Attorney Lois Li is a bilingual business and commercial attorney licensed in Michigan, U.S. since 2014, in Ontario, Canada since 2015, and in New York, U.S. since 2020. As an attorney licensed in two countries, Lois leads Alpine Law’s US/China/Canada practice. She is experienced in legal and contractual transactions in both English and Chinese. Lois has over six years of experience in assisting clients with business operations and legal services, and is specialized in advising companies with legal needs in International Business, Securities law, Cryptocurrency – Block chain, and Fin-Tech. Having served as both an outside and an in-house counsel, Lois worked with many startup and small businesses. With a strong understanding of core business and the ability to translate business needs into legal requirements, Lois has assisted many companies to establish policies and procedures, and drafted and negotiated employment and transaction contracts. Further licensed as a Registered Nurse since 2010, Lois specializes in healthcare law and is experienced in FDA, HIPAA, Medicare and Medicaid regulations. She has assisted many businesses in the medical and healthcare industry.

Find the best lawyer for your project

Browse Lawyers Now

Need help with a Commission Agreement?

Create a free project posting
Business lawyers by top cities
See All Business Lawyers
Commission Agreement lawyers by city
See All Commission Agreement Lawyers

ContractsCounsel User

Recent Project:
Sales Rep Contract Review
Location: California
Turnaround: Less than a week
Service: Contract Review
Doc Type: Sales Commission Agreement
Page Count: 3
Number of Bids: 5
Bid Range: $395 - $500

ContractsCounsel User

Recent Project:
Selling My Graphic Novel In China. Formalizing Agreement With A Person There Who Is Translating Advertising & Negotiations
Location: Illinois
Turnaround: A week
Service: Drafting
Doc Type: Sales Commission Agreement
Number of Bids: 3
Bid Range: $995 - $1,500
related contracts
See More Contracts
other helpful articles

Need help with a Commission Agreement?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city