Commission Agency under the Commercial Code
As the term suggests, commission refers to a right or fee received in return for performing a task. Commission is also commonly referred to as a service fee or remuneration and, in commercial practice, represents the amount received from the owner of goods for the sale of such goods.
The concepts of commission and commission agency are also widely used terms in accounting.
The Concept of Commission Agency and Its Position under Iranian Commercial Law
What is a Commission Agency?
In simple terms, a commission agency acts on behalf of another person in the performance of commercial transactions.
This definition, however, is only a general explanation and does not fully capture the legal meaning of the term “commission agency”.
From a legal perspective, a commission agency may be regarded as a contractual relationship or undertaking formed by mutual consent between the principal and the commission agent. Under this arrangement, the commission agent carries out a transaction upon the instruction of, or for the account of, another person.
Who Is a Commission Agent?
A commission agent is the person who performs commission agency activities. Pursuant to Article 357 of the Iranian Commercial Code, a commission agent is a person who conducts a transaction in their own name but upon the instruction of another party, and in return receives remuneration known as commission.
For example, the term “commission” derives from the French term “commissionnaire,” which is closely associated with this concept. In practice, commissions represent the remuneration, and commissionnaires correspond to commission agents.
Is Everyone Entitled to Act as a Commission Agent?
The Commercial Code does not prescribe any specific condition or legal requirement for engaging in a commission agency. Accordingly, individuals interested in commercial activities and possessing relevant skills may engage in this field.
Acting as a commission agent does not require obtaining a business license or special permit. Many professionals in accounting also engage in commission-based agency activities.
Is Commission Agency a Form of Power of Attorney or Representation?
A commission agency is distinct from a power of attorney and legal representation. In agency or representation relationships, transactions are conducted in the name of the principal, and the resulting contracts are attributed directly to the principal.
In a commission agency, however, the principal’s name may not be disclosed in the transaction or may even be expressly denied. In most commission agency transactions, the counterparty is not aware of the principal and deals exclusively with the commission agent.
Reasons for Using Commission Agency Services
The expertise of commission agents in identifying suitable counterparties and completing transactions is a primary driver of the continued demand for commission agency services.
In many cases, individuals who lack sufficient time, connections, or expertise to find appropriate trading partners rely on commission agents.
Another common reason for the widespread use of commission agency is the parties’ desire to conceal the identity of the principal involved in the transaction.
Duties and Responsibilities of a Commission Agent
The principal duties and responsibilities of a commission agent include the following:
- Executing the instructions of the principal.
- Conducting transactions in their own name, where instructed by the principal.
- Having no personal interest in the relevant transaction.
- Acting in good faith and safeguarding the interests of the principal.
- Providing full and accurate information to the principal.
- Maintaining confidentiality of information.
Who Is a Broker and What Is the Difference Between a Broker and a Commission Agent?
Brokerage and intermediary activities are similar in nature to commission agency, but there are material differences between the two.
The role of a broker is limited to introducing the parties to a transaction, and, as a general rule, brokers do not assume representation of either party. By contrast, a commission agent is directly involved in the transaction and is deemed a contracting party.
A broker bears no contractual obligations toward the parties to the transaction, whereas a commission agent has obligations toward the counterparty and legal responsibilities toward the principal.
Important Note Regarding the Liability of the Commission Agent: If the commission agent has not provided any guarantee for the proper performance of the transaction and has not been negligent in carrying out their duties, they shall not be held liable for the failure of the counterparty to perform the transaction. Under commercial custom and the Commercial Code, a commission agent is generally defined as a person who performs a transaction in return for remuneration. However, in customs practice, a commission agent means a person who performs customs clearance and related formalities on behalf of the owner of the goods. Such a person is recognized as a customs broker under the Customs Affairs Law. The validity period of a commission agency license for customs matters is 1 year, and applicants seeking renewal must apply before the license expires.
Frequently Asked Questions Regarding Commission Agency under the Commercial Code
A commission agency is a type of commercial contract under which a person known as the commission agent conducts a transaction upon the instruction and for the account of another person, known as the principal. In return, the commission agent receives remuneration referred to as commission.
According to Article 357 of the Iranian Commercial Code, a commission agent is a person who conducts a transaction in their own name but upon the instruction of another party and receives commission as compensation.
The Commercial Code does not impose any specific licensing or permit requirements for a commission agency. Any individual with sufficient ability and expertise in commercial matters may engage in this activity.
In representation or power of attorney, transactions are conducted in the name of the principal. In a commission agency, transactions are typically carried out in the name of the commission agent. The principal’s identity may remain undisclosed to the counterparty.
A broker merely introduces the parties to a transaction and assumes no contractual obligations. A commission agent, however, is a party to the transaction and bears legal obligations toward the principal and, in some cases, the counterparty.
The primary duties include executing the principal’s instructions, acting in good faith, safeguarding the principal’s interests, providing full disclosure, maintaining confidentiality, and conducting transactions in their own name when instructed.
In customs practice, a commission agent is a person who performs customs clearance procedures on behalf of the owner of the goods. Under the Customs Affairs Law, such a person is recognized as a customs broker. What does commission agency mean under the Commercial Code?
Who is considered a commission agent?
Does a commission agency require a license or permit?
What is the difference between a commission agency and representation or power of attorney?
What is the difference between a broker and a commission agent?
What are the main duties of a commission agent?
Who is a commission agent in customs matters?
