What Should a Foreign Company Check Before Appointing a Distributor or Sales Agent in Korea?

Short Answer

Before appointing a distributor or sales agent in Korea, a foreign company should clearly define the commercial relationship, authority of the Korean partner, exclusivity, regulatory responsibilities, intellectual property rights, and termination rights.

A Korean distributor that purchases and resells products in its own name is legally and commercially different from a sales or commercial agent that solicits or negotiates transactions for the foreign company. Importantly, Korean law generally looks at how the relationship actually operates, not simply the title of the agreement.

Foreign companies should therefore review both the agreement and the proposed business structure under Korean law before appointing a Korean partner.

What Is the Difference Between a Distributor and a Sales Agent?

A distributor generally purchases products and resells them in its own name and for its own account, bearing the commercial risks associated with resale.

A sales or commercial agent generally solicits or negotiates transactions for the foreign company and may have authority to enter into contracts on its behalf if such authority has been granted.

Relevant factors include:

• Who contracts directly with the Korean customer
• Who determines the resale price
• Who bears inventory and customer-payment risk
• Whether the Korean partner can legally bind the foreign company
• Whether compensation is a commission or a resale margin

These distinctions can affect the parties’ contractual liability, regulatory obligations, and rights upon termination.

Should a Korean Distributor Have Exclusive Rights?

Exclusivity should be granted carefully and linked to objective performance requirements.

An exclusive distribution agreement should clearly define:

• Products, territory, and sales channels
• Minimum purchase or sales targets
• Reserved customers or accounts
• Performance review procedures
• Cure periods for underperformance
• When exclusivity may be withdrawn

Rather than providing unconditional exclusivity, the agreement can provide that exclusivity continues only while agreed performance standards are satisfied.

Can the Foreign Supplier Control the Distributor’s Resale Prices?

This requires particular caution under Korean competition law.

A supplier should distinguish between a genuinely non-binding suggested resale price and a fixed or minimum resale price.

Monitoring resale prices and requiring compliance through supply suspension, termination, or other commercial penalties may support a finding that the resale price was effectively imposed. Korean competition law generally prohibits resale price maintenance, subject to limited exceptions.

Restrictions on sales territories, customers, and online sales channels may also require competition-law review depending on their purpose and competitive effect.

What Korean Regulatory Requirements Should Be Addressed?

The agreement should clearly allocate responsibility for applicable Korean regulatory requirements.

Depending on the product and business model, different responsibilities may apply to the manufacturer, importer, distributor, seller, or local responsible person.

The parties should determine who is responsible for matters such as:

• Importation and product registration
• Certification and labeling
• Advertising and marketing compliance
• Product safety and recalls
• Communications with Korean regulators
• Regulatory obligations following termination

Because these requirements vary significantly by product, they should be reviewed for the particular goods or services being distributed in Korea.

How Should Intellectual Property and Customer Information Be Protected?

The foreign company should normally retain control over the registration, ownership, licensing, and enforcement of its key trademarks and other intellectual property in Korea.

The distributor should receive only the rights necessary to perform the agreement, and the contract should address what happens to trademarks, domains, marketing materials, and other brand assets when the relationship ends.

Customer information also requires careful treatment. If personal information collected in Korea is shared with or made accessible to the foreign company outside Korea, Korean cross-border data transfer requirements may apply.

What Should the Agreement Say About Termination?

Termination is one of the most important areas to address before the relationship begins.

The agreement should clearly cover:

• Contract term and renewal
• Grounds for termination
• Notice and cure periods
• Remaining inventory and pending orders
• Outstanding payments
• Customer transition
• Cessation of trademark use
• Return, deletion, or lawful retention of confidential and customer information
• Post-termination regulatory responsibilities

Foreign companies should also consider whether the Korean partner could qualify as a commercial agent under the Korean Commercial Act.

In certain circumstances, a commercial agent may have a post-termination compensation claim where its activities created or substantially increased customer relationships from which the foreign company continues to benefit. In limited circumstances, similar principles may potentially apply even to a party characterized as a distributor, depending on how the relationship actually operated.

This issue should therefore be reviewed before terminating a long-term Korean distribution or agency relationship.

Does Korea’s Fair Agency Transactions Act Apply?

Potentially.

The Fair Agency Transactions Act may apply to certain continuing and repeated resale or consignment relationships where the statutory requirements are satisfied.

Its application depends on the actual relationship, including factors such as the parties’ status, the supplier’s superior bargaining position, the nature of the transactions, and whether another sector-specific statute applies.

Accordingly, not every agreement called a “distribution agreement” or “agency agreement” is automatically subject to the Act.

Does the Agreement Need to Be Governed by Korean Law?

Not necessarily.

The parties may choose foreign governing law or international arbitration, particularly in cross-border transactions.

However, choosing foreign law does not necessarily exclude mandatory Korean laws and regulations applicable to business activities in Korea.

The agreement should therefore address governing law and dispute resolution while considering Korean competition, agency, regulatory, and other mandatory requirements.

What Should a Foreign Company Check Before Signing?

Before appointing a Korean distributor or sales agent, the foreign company should confirm:

1. What is the Korean partner’s actual role and authority?
2. Is the relationship exclusive, and what performance is required?
3. Who controls pricing, customers, and sales channels?
4. Who handles Korean regulatory compliance?
5. Who owns and controls trademarks, IP, and customer information?
6. How can the relationship be terminated?
7. Could Korean competition, agency, or other mandatory laws apply?

Conclusion

A Korean distributor or sales agent can be an effective way for a foreign company to enter the Korean market, but the relationship should be structured carefully from the beginning.

The agreement should clearly address authority, exclusivity, pricing, regulatory responsibilities, intellectual property, customer information, and termination rights.

Most importantly, Korean law may characterize the relationship based on how it actually operates rather than what the agreement is called. Careful review before appointment—and particularly before termination—can help reduce the risk of distribution disputes, regulatory violations, and unexpected post-termination claims.