Commercial brokerage is currently a popular choice for many businesses due to its high efficiency. However, businesses need to be careful not to confuse different forms of commercial intermediaries. Accurately identifying the nature of the relationship with the intermediary partner and choosing the right type to suit business needs is crucial and determines the effectiveness of the business's operations.
Proper financial management, consistent with the nature of commercial intermediaries, will help businesses accurately assess their financial situation, comply with the law, and make effective business decisions.
1. Commercial Brokerage
Commercial brokerage is a commercial activity in which a trader acts as an intermediary (referred to as the broker) for parties buying and selling goods or providing services (referred to as the brokered parties) in negotiating and concluding contracts for the purchase and sale of goods and services, and receives remuneration according to the brokerage contract (Article 150 of the Commercial Law).
2. Activities of representing merchants
Representing a merchant is when a merchant receives authorization (called the agent) from another merchant (called the principal) to carry out commercial activities in the name and under the direction of that merchant, and receives remuneration for the representation (Article 141 of the Commercial Law).
To clarify, let's compare Commercial Brokerage and the activity of Representing Merchants.
Commercial Brokerage Activities | Business Representation Activities | |
Definition | Commercial brokerage is a commercial activity in which a trader acts as an intermediary (referred to as the broker) for parties buying and selling goods or providing services (referred to as the brokered parties) in negotiating and concluding contracts for the purchase and sale of goods and services, and receives remuneration according to the brokerage contract (Article 150 of the Commercial Law). | Representing a merchant is when a merchant receives authorization (called the agent) from another merchant (called the principal) to carry out commercial activities in the name and under the direction of that merchant, and receives remuneration for the representation (Article 141 of the Commercial Law). |
The role of the intermediary | The broker assists the brokered party in negotiating and concluding contracts for the sale of goods; the broker acts as a bridge connecting buyers and sellers. | The agent carries out commercial activities on behalf of the principal. |
The brokerage firm does not participate in the execution of the contract between the brokered parties, except in cases where authorized by the brokered party. | An authorized representative is empowered to act on behalf of the principal in conducting commercial transactions (including concluding contracts) with third parties. | |
The brokerage firm does not represent the interests of either party. | The agent acts under the direction of the principal, representing the interests of the principal. | |
On behalf of | The brokerage firm conducts brokerage activities in its own name. | The agent conducts commercial activities on behalf of the principal. |
The time when the right to remuneration arises | The right to receive brokerage fees arises from the moment the parties being brokered have signed a contract with each other (unless otherwise agreed). | The right to receive agency fees arises from the time agreed upon by the parties in the agency contract. |
Contract form | Commercial brokerage contracts do not necessarily need to be in writing. | A contract for representation of a business must be in writing or in another form of equivalent legal validity (telegram, telex, fax, data message, and other forms as prescribed by law). |
The fundamental difference between commercial brokerage and commercial agency lies in the scope of authorization.
Specifically, in commercial brokerage activities, the broker only acts as an intermediary, introducing and connecting parties, and is not authorized to participate in the contract or represent any party.
Meanwhile, in commercial agency activities, the agent is authorized by the principal to represent and conduct commercial activities on behalf of the principal within the scope of the authorization.
3. Entrusted buying and selling of goods
Consignment for the purchase and sale of goods is a commercial activity whereby the consignee carries out the purchase and sale of goods in their own name according to the conditions agreed upon with the consignor and receives a commission for the consignment (Article 155 of the Commercial Law).
To clarify, let's compare the activities of commercial brokerage and consignment trading as follows:
| Commercial Brokerage Activities | Goods trading consignment activities | |
| Khai thought | Commercial brokerage is a commercial activity in which a trader acts as an intermediary (referred to as the broker) for parties buying and selling goods or providing services (referred to as the brokered parties) in negotiating and concluding contracts for the purchase and sale of goods and services, and receives remuneration according to the brokerage contract (Article 150 of the Commercial Law). | Consignment for the purchase and sale of goods is a commercial activity whereby the consignee carries out the purchase and sale of goods in their own name according to the conditions agreed upon with the consignor and receives a commission for the consignment (Article 155 of the Commercial Law). |
| Subject | + The broker: must be a businessperson. + The party being brokered: Merchants or non-merchants. | + The consignee: A merchant trading in goods that match the goods being consigned. + The principal: A merchant or non-merchant. |
| Role | Brokers act as a bridge connecting buyers and sellers, mediating negotiations and contract agreements; they do not participate in the execution of contracts between the parties (unless authorized to do so). | The consignee carries out the buying and selling of goods on behalf of the consignor. |
| On behalf of | The brokerage firm operates in its own name and does not represent the interests of any of the parties being brokered. | The trustee acts in their own name, representing the interests of the trustee. |
| Legal responsibility | The broker is responsible for the legal standing of the brokered party, but not for their ability to pay. | The trustee is jointly liable for the trustee's unlawful acts if the cause of such unlawful acts is partly due to their own fault. |
| Contract form | Commercial brokerage contracts do not necessarily need to be in writing. | A consignment contract for the purchase and sale of goods must be in writing or in another form with equivalent legal validity. |
The main difference between commercial brokerage and consignment trading lies in the level of involvement of the parties in the transaction.
Specifically, in commercial brokerage activities, the broker does not directly participate in the execution of the contract between the parties but only acts as an intermediary connecting them.
Conversely, in consignment trading, the consignee directly participates in the buying and selling of goods with third parties on behalf of the consignee.
4. Commercial Agents
Commercial agency is a commercial activity whereby the principal and the agent agree that the agent, acting in their own name, will buy and sell goods for the principal or provide the principal's services to customers in exchange for remuneration (Article 166 of the Commercial Law).
| Commercial Brokerage Activities | Commercial Agency Activities | |
| Definition | Commercial brokerage is a commercial activity in which a trader acts as an intermediary (referred to as the broker) for parties buying and selling goods or providing services (referred to as the brokered parties) in negotiating and concluding contracts for the purchase and sale of goods and services, and receives remuneration according to the brokerage contract (Article 150 of the Commercial Law). | Commercial agency is a commercial activity whereby the principal and the agent agree that the agent, acting in their own name, will buy and sell goods for the principal or provide the principal's services to customers in exchange for remuneration (Article 166 of the Commercial Law). |
| Subject | + The broker: must be a businessperson. + The party being brokered: Merchants or non-merchants. | + Principal: Merchant (provides goods, money, and authorizes the provision of services). + Agent side: Merchant |
| Role | The brokerage firm acts as an intermediary in negotiating and signing contracts between the parties being brokered. | The dealer acts as an intermediary in the process. The buying and selling of goods on behalf of the principal or the provision of services by the principal to customers. |
| On behalf of | The brokerage firm operates in its own name, does not represent the interests of any party, and does not participate in the execution of contracts between the parties (except when authorized). | The agent operates in their own name; they are the signatory on the contract and are the party to the contract for the purchase and sale of goods or provision of services. |
| Relationship | The relationship between the broker and the brokered party is a short-term, one-time contractual relationship. | The relationship between the agent and the principal is a long-term contractual relationship. |
| The right to determine the selling price. | The broker does not have the right to determine the selling price of goods or the provision of services between the brokered parties. | The distributor has the right to determine the selling price of goods and services provided to customers. |
| Contract form | Brokerage contracts do not necessarily need to be in writing. | Agency agreements must be in writing or in another form of equivalent legal validity. |
The key difference between commercial brokerage and commercial agency lies in the roles and responsibilities of the parties involved in the contract.
Specifically, the broker does not directly participate in the execution of the contract between the parties and does not have their name on the contract.
Conversely, the agent is the party that signs and executes the contract, being the subject of the sales or service agreement with a third party.
However, in practice, many businesses confuse these two activities. Therefore, a clear distinction is needed to determine the correct legal nature of each party.
5. Is it permissible to enter into a commercial brokerage contract with an individual?
According to Article 150 of the 2005 Commercial Law, commercial brokerage is specifically defined as follows:
"Commercial brokerage is a commercial activity in which a trader acts as an intermediary (referred to as the broker) for parties buying and selling goods or providing services (referred to as the brokered parties) in negotiating and concluding contracts for the purchase and sale of goods and services, and receives remuneration according to the brokerage contract."
Based on the above regulations, in a commercial brokerage contract, the broker must be a business entity, while the brokered party does not necessarily have to be a business entity (the brokered party can be a business entity, an individual, an organization, etc.).
To effectively manage the finances of commercial intermediary activities, businesses need to keep the following in mind:
- Clearly identify the type of commercial intermediary that the business is using (commercial brokerage, commercial agency, import/export consignment, etc.) based on its operational characteristics and relationships with relevant parties.
- Based on the type of commercial intermediary, it is possible to accurately determine the income and expenses arising from that activity.
- Establish appropriate accounting, statistical, and reporting systems to track in detail all economic transactions arising from commercial intermediary activities.
- Comply with accounting, tax, and legal regulations relevant to each type of commercial intermediary that the business is employing.