How to Review a Commission Agreement: A Clause-by-Clause Checklist

How to review a commission agreement before you sign Most commission disputes come down to four questions the agreement should answer without argument: what triggers commission, how much, when it is paid, and what happens when a deal unwinds or the relationship ends. Read the agreement with those questions in hand and the risky clauses stand out quickly. Work through the checklist below clause by clause. Whether you are the agent or the company, the test is the same for each clause: is the rule clear enough that a dispute could be settled by reading it? This is general information, not legal advice; for a large or exclusive arrangement, have a lawyer check the final draft. ## The clause-by-clause checklist ### 1. Appointment and exclusivity

• Is the role clear: solicit orders, introduce customers, or close deals? Is it exclusive or non-exclusive, and is the territory or segment defined?
• Red flag (agent): an exclusive commitment with a minimum target but no matching protection on commission. Red flag (company): exclusivity granted with no performance target and no exit. ### 2. The commission base
• Is commission a percentage of a clearly defined base, for example net invoice value excluding GST and freight?
• Red flag: "commission on sales" with no definition, so the parties disagree later on whether tax, discounts and shipping count. ### 3. When commission is earned
• Is the trigger stated: order accepted, invoice raised, or payment received?
• Red flag (company): commission due on invoice, so you pay the agent even if the customer never pays. Red flag (agent): commission only on full payment, with no protection if the company sits on collection. ### 4. Payment timing
• Is there a clear date, for example within a set number of days of month end?
• Red flag: "commission will be paid periodically" with no date, which lets payment drift indefinitely. ### 5. Qualifying and repeat sales
• Are repeat orders, renewals and upsells from an introduced customer covered, and for how long?
• Red flag (agent): you introduce a customer who buys for years, but commission stops after the first order. Red flag (company): an open-ended tail that pays the agent forever on a single introduction. ### 6. Clawback and adjustments
• Is there a fair mechanism to reverse commission on cancelled, refunded or unpaid sales?
• Red flag: either no clawback at all, or an unlimited right for the company to "adjust" commission at its own discretion. ### 7. Termination and the pipeline
• Can either side exit on reasonable notice? What happens to deals in progress at termination?
• Red flag (agent): termination with no commission on deals you have already closed or all but closed. Red flag (company): an obligation to pay commission on the whole future pipeline. ### 8. Non-solicitation and restraint
• Is any post-termination restriction reasonable in time, territory and scope?
• Red flag: a blanket bar on working in the industry after the contract ends. Indian courts generally will not enforce a restraint of trade that operates after the agreement is over. ### 9. Authority
• Is it clear the agent cannot bind the company or make promises beyond approved materials?
• Red flag (company): no limit on the agent's authority, exposing you to representations you never approved. ### 10. Taxes: TDS and GST
• Does the agreement reflect TDS under section 194H and address GST on the commission?
• Red flag: silence on tax, leading to a later fight over whether the quoted rate was gross or net of TDS and GST. ### 11. Independent contractor status
• Is the agent clearly an independent contractor, not an employee, with its own costs and taxes?
• Red flag: language that blurs the line and could create employment or PF/ESI exposure for the company. ### 12. Reporting and audit
• Does the agent get statements showing how commission was calculated, and a right to query them?
• Red flag (agent): you are paid a lump sum with no breakdown, so you cannot check it. ### 13. Set-off and expenses
• Is it clear whether the agent bears its own costs, and whether the company can set off amounts against commission?
• Red flag (agent): the company can deduct vaguely defined "expenses" or "damages" from commission at its own discretion. Red flag (company): no right to set off a clawback against future commission, so recovering an overpayment means a separate claim. ### 14. Governing law and disputes
• Is the governing law stated and the forum fair and convenient?
• Red flag: an inconvenient exclusive forum that makes any claim uneconomic to pursue. ## Read it in this order Do not review a commission agreement top to bottom. Start with the base and the earning trigger (clauses 2 and 3), because they decide how much and when. Then read the clawback, termination and pipeline clauses together, because they decide what happens when a deal unwinds or the relationship ends. Only then check the housekeeping: tax, status, reporting and forum. Reviewing in that order keeps your attention on the clauses that actually move money, and stops a clean-looking rate card from hiding a weak trigger or a one-sided adjustment right. ## A quick note on the law A commission agent acting for a principal is governed by the agency provisions of the Indian Contract Act, 1872. Commission paid to a resident attracts TDS under section 194H of the Income-tax Act, 1961, and GST may apply on the agent's service. Rules differ by jurisdiction, and some countries give commercial agents extra protection on termination, so for the UK, Ireland, Singapore, Australia or the US, check local rules. This is not legal advice. ## Where a contract workspace helps Reviewing one commission agreement by hand is manageable. Reviewing many, and then living with them, is where things slip: catching an undefined commission base before it causes a dispute, applying clawbacks consistently, and tracking the commission tail after an agent leaves. Drafting, reviewing, tracking and governing commission agreements can sit in one AI workspace tuned to how your company pays its agents. Adira is one example of a tool built this way.