Selling in France: Agent, Distributor or Subsidiary?

The three routes to the French market

Companies rarely sell into a new market unaided; they use intermediaries, and French practice recognises several — approved distributors, sales representatives, branch managers, commercial agents, commission agents, concessionaires and franchisees — each carrying its own bundle of rights and duties towards the supplier. For a foreign company approaching France, the practical choice usually reduces to three: appoint a commercial agent, appoint a distributor, or establish a French subsidiary and sell through it. The right answer depends less on tax rates or headcount than on three structural questions: who owns the customer relationship, who bears the commercial risk, and what it will cost to bring the arrangement to an end.

Those questions matter because the routes are protected very differently. The commercial agent enjoys a mandatory protective statute culminating in a substantial termination indemnity; the distributor operates on ordinary commercial-law freedom, with no equivalent indemnity but a real protection against being cut off abruptly; and the subsidiary substitutes an internal structure for any third-party protection at all, at the price of the obligations that come with running a French company. This article takes each in turn and then sets them side by side.

Route 1 — The commercial agent

A commercial agent negotiates, and where authorised concludes, sales in the name and on behalf of the principal. It does not buy the goods; it introduces and closes business for the principal, who remains the seller and the owner of the customer relationship. That is the route's great advantage for a foreign company: the customers are yours, not the intermediary's, and if the relationship ends the customer base stays with you.

The price of that advantage is the agent's protective statute. The commercial agent is governed by the mandatory regime of Articles L 134-1 and following of the Commercial Code (Code de commerce), which cannot be contracted out of to the agent's detriment (Article L 134-16). Its central features are a notice period of one, two or three months by seniority (Article L 134-11), and, above all, a termination indemnity in reparation of the harm caused by the end of the relationship (Article L 134-12), which French courts customarily assess at around two years of the agent's gross commission — with no statutory cap. The agency is treated as a contract concluded in the parties' common interest, which is precisely why its ending is compensated so generously. For a principal, the agent is the route that keeps the customers but carries a predictable, and substantial, exit cost.

Route 2 — The distributor

A distributor — including the concessionaire of an exclusive network — does the opposite: it buys the goods from the supplier and resells them in its own name, on its own account, and at its own risk. It is remunerated not by commission but by its resale margin, and it deals with its customers as its own. There is no self-standing statutory definition of the "distribution contract" in French law; the distributor's position is built from ordinary contract and commercial law, subject to the public-order rules on competition and on purchasing exclusivity.

The most important difference from the agent lies in termination. A distributor has no automatic statutory indemnity equivalent to the agent's; the concession is not, in itself, treated as an agency-style relationship giving a right to a termination indemnity of plein droit. What the distributor has instead is the general protection against the abrupt termination of an established commercial relationship (Article L 442-1 of the Commercial Code), which obliges the party ending a settled relationship to give a notice geared to its duration and importance, and which sounds in damages — often measured by reference to the margin lost over the notice that should have been given — where that notice is insufficient. The distributor's protection is therefore about being given time, not about being paid for the goodwill; it can produce a long notice for a long relationship, but it is a different animal from the agent's indemnity.

A purchasing exclusivity also needs care in the drafting. To be a true exclusivity rather than a mere priority, the contract should determine the quantity of goods the distributor is to buy; absent a determined quantity, the undertaking may amount only to a duty to source preferentially, or a simple ban on buying elsewhere that the distributor can escape by ceasing its activity, and a purchase obligation left to the supplier's sole will can even void the contract. These are drafting questions peculiar to distribution, and they have no counterpart in an agency, where the agent buys nothing.

Two further features frame the distributor route. Where the supplier requires an exclusivity from the distributor and provides its name, trade mark or sign under a contract in their common interest, it must give the distributor sincere pre-contractual information, at least twenty days before signing, enabling it to commit with full knowledge (Article L 330-3, with the content fixed by Articles R 330-1 and R 330-2 and a fine for failure). And any purchasing-exclusivity undertaking — the distributor's commitment not to source equivalent goods elsewhere — is capped at ten years (Article L 330-1); a longer tie is not enforceable beyond that limit. Where the supplier runs a selective network, admission of distributors must rest on objective qualitative criteria, fixed uniformly and applied without discrimination, and no more restrictive than necessary.

The reason the distributor lacks the agent's automatic indemnity is instructive. The agent's indemnity flows from the fact that the agency is a mandate concluded in the parties' common interest; only a party in such a relationship can claim, as of right, reparation for the harm caused by a wrongful termination. A distributor that wishes to claim more than the abrupt-termination protection must establish that it was itself bound to the supplier by a mandate of common interest — which the ordinary buy-and-resell concession is not — and, in an international contract, that French law applies. In practice, therefore, the distributor's remedy on termination is the abrupt-termination regime and not an agency-style indemnity, and a company choosing this route should size its exposure accordingly.

Where the supplier runs a selective network, the law also gives it a tool the agent relationship does not need: protection of the network itself. The supplier can obtain reparation from any operator who participates, directly or indirectly, in a breach of the ban on reselling outside a lawful selective or exclusive network (Article L 442-2), which is how a brand keeps unauthorised resellers out. The validity of that protection depends on the network being lawful — selection on objective qualitative criteria, fixed uniformly and applied without discrimination, and no more restrictive than necessary — and the courts have accepted, for genuine luxury products, clauses that even restrict the visible use of third-party internet platforms, provided they are proportionate and non-discriminatory. These network questions are peculiar to distribution; they simply do not arise with an agent, who sells the principal's goods in the principal's name.

The border between agent and distributor — and why it is policed

Because the two routes carry such different exit costs, the boundary between them is contested and the courts guard it by looking at substance. An intermediary that, though called an agent, in fact buys the supplier's goods and resells them on its own account is not applying the rules of agency at all but those of sale, and its contract may be requalified as a concession rather than an agency. Conversely, an operator described as a "distributor" that in reality negotiates and concludes sales in the supplier's name, on the supplier's account, is a commercial agent whatever the contract calls it — with the mandatory statute and the indemnity that follow.

The practical significance for a foreign supplier is that the choice of route cannot be made on paper alone. The label in the contract will not survive a relationship that operates differently; what governs is who sells in whose name, who takes title to the goods, who bears the risk, and how the intermediary is paid. Choosing the agent route means accepting the statute and the indemnity; choosing the distributor route means genuinely transferring the trading role, the title and the risk to the distributor. Trying to occupy a middle ground — an agent's control with a distributor's exit cost, or the reverse — is precisely what the requalification case law defeats.

Route 3 — The French subsidiary

The third route dispenses with the third-party intermediary altogether: the foreign company sets up its own French entity — typically a SAS or SARL — and sells through it. Here there is no agent and no distributor, and so none of the intermediary-protection questions arise: there is no agent indemnity to pay, and no abrupt-termination claim to face, because there is no independent counterparty to protect. The company keeps full control of the commercial strategy and retains the whole margin rather than sharing it with an intermediary, and it builds a direct, owned presence in the market.

What replaces the intermediary's protection is the company's own set of obligations. Establishing and running a French subsidiary means incorporating a company, endowing it with capital and governance, employing staff under French employment law, and creating a taxable presence in France with the accounting, reporting and social-security consequences that follow. These are the costs of internalising distribution: control and margin are retained, but so is every operational and regulatory burden that an intermediary would otherwise have carried. The subsidiary route is therefore usually chosen where the French market is strategic and large enough to justify a permanent establishment, and where the company wants to own the customer relationship directly rather than through anyone else.

The subsidiary route engages French company, tax and employment law that sit outside the scope of this agency-focused guide. The points above are structural; the incorporation form, capital, governance, permanent-establishment and employment questions should be settled with dedicated corporate and tax advice before any entity is set up.

The three routes compared

Setting the routes side by side shows how the same three structural questions — customers, risk, exit — are answered differently by each.

Choosing between them

The choice follows from what the company values most. If it wants to keep ownership of the customers and to direct the commercial strategy, and is prepared to pay a predictable indemnity on exit, the commercial agent is the natural route — light to set up, high in control, but carrying the mandatory statute. If it prefers to push the trading risk and the working capital onto a local partner and to avoid an agent-style indemnity, the distributor is attractive — provided the company accepts that it will not own the customers and cannot terminate a settled relationship without a proportionate notice. If the French market is large and strategic enough to justify a permanent commitment, and the company wants the whole margin and complete control, the subsidiary is the route — at the cost of running a French company of its own.

A recurring trap deserves flagging. Because the agent's indemnity is mandatory and generous, some suppliers try to obtain an agent's control while paying a distributor's exit cost — for instance by labelling as a "distributor" an intermediary that in truth negotiates sales in the supplier's name. French law looks to the substance of the relationship, not its label; an arrangement that functions as an agency will be treated as one, indemnity included, however it is described. The sound course is to choose the route deliberately, structure the contract to match it, and price the exit cost of that route into the commercial bargain from the outset.

It is also worth remembering that the choice is not necessarily permanent. Many foreign companies begin with an agent or a distributor to test the French market at low cost and commitment, and move to a subsidiary once the volumes justify a permanent establishment. Sequencing the routes in this way can be sensible — but each transition has its own cost, because ending the first relationship engages either the agent's indemnity or the distributor's abrupt-termination protection. Planning the eventual exit at the moment of entry is what keeps that later transition affordable.

Frequently asked questions

What is the difference between a commercial agent and a distributor in France?

An agent negotiates and concludes sales in the principal's name, is paid by commission, and does not own the customers; a distributor buys and resells in its own name at its own risk and is paid by its margin. The agent has a mandatory termination indemnity (Article L 134-12); the distributor does not, but is protected against abrupt termination (Article L 442-1).

Does a distributor get a termination indemnity like an agent?

No. A distributor has no automatic statutory indemnity equivalent to the agent's. Its protection is against abrupt termination of an established relationship under Article L 442-1, which requires a proportionate notice and gives damages — often based on the margin lost over the missing notice — where the notice is insufficient.

Why is the commercial agent more expensive to terminate?

Because the agent's regime is mandatory and its termination indemnity is customarily around two years' gross commission, with no statutory cap. That indemnity cannot be contracted away (Article L 134-16), so it is a foreseeable cost of the agent route.

How long can a purchasing exclusivity bind a distributor?

At most ten years. A distributor's undertaking not to source equivalent goods from other suppliers is capped at ten years (Article L 330-1), and a longer tie is not enforceable beyond that limit.

What pre-contractual information is owed to a distributor?

Where the supplier requires exclusivity and provides its name, trade mark or sign under a contract in the parties' common interest, it must give sincere pre-contractual information at least twenty days before signing (Article L 330-3), on pain of a fine and potential liability if the information is false.

When does a subsidiary make more sense than an intermediary?

Usually where the French market is strategic and large enough to justify a permanent establishment, and where the company wants full control and the whole margin, and to own the customer relationship directly. The trade-off is that it must incorporate, capitalise, staff and tax a French company of its own.

Key takeaways

How our French lawyers help you choose and structure the route

This article is for general information only. It does not constitute legal advice. The choice of route, and especially the company-law and tax aspects of a subsidiary, are fact-specific. Contact our French lawyers for qualified advice before appointing an intermediary or establishing an entity in France.