Many foreign companies enter the Korean market not by setting up an entity but by appointing a local distributor or agent. The two models look similar but carry different legal and commercial consequences, and the way the agreement is drafted determines how much control and how much risk the foreign supplier retains. Getting the structure right protects both the brand and the relationship.
Distributor or Agent: Why It Matters
A distributor buys your products and resells them on its own account, taking title and bearing inventory and credit risk. An agent solicits orders or concludes contracts on your behalf, with the sale occurring directly between you and the customer. The choice affects who bears risk, how you are taxed and registered, who owns the customer relationship, and what happens to that relationship when the arrangement ends.
Exclusivity and Territory
Exclusive appointments are common but should be tied to performance. An exclusive distributor that fails to meet sales targets can lock you out of the market, so minimum purchase or performance conditions, with clear consequences, are essential. Territory, product scope, and channel restrictions should be defined precisely to avoid disputes about what the partner may and may not do.
Pricing freedom deserves particular care. A foreign supplier that dictates the resale price its Korean distributor may charge can run into fair-trade concerns, because resale price maintenance is restricted. The same caution applies to clauses that restrict where or to whom the distributor may sell. These provisions are not automatically void, but they should be drafted with the competition rules in mind rather than copied from a template.
Termination and Fair-Practice Concerns
Termination is the most contentious part of these relationships. Korean law and fair-trade principles can scrutinize a supplier that terminates or refuses to renew in a way perceived as abusive, particularly where the distributor has made significant investments. Clear term, renewal, and termination provisions, with reasonable notice and defined grounds, reduce the risk of a claim. Provisions on post-termination inventory, customer data, and use of trademarks should also be settled in advance.
What to Address Before Appointing a Partner
Decide whether the distributor or agent model fits your goals and tax preferences. Define exclusivity narrowly and tie it to measurable performance. Specify intellectual property and trademark use, pricing freedom, and reporting obligations. Set out clear termination grounds and notice, and choose a workable dispute forum. Above all, document the relationship in writing rather than relying on an informal understanding that becomes contested once sales grow.
A well-structured distribution or agency agreement lets you grow in Korea without losing control of your brand or your exit. We help foreign suppliers structure, draft, and renegotiate these arrangements with Korean partners. Contact our office to review or prepare your agreement.