Sales Commission Agreement (Kenya)

A Sales Commission Agreement in Kenya sets out the rights, duties and consideration binding the parties to it.

The law of agency is foundational to commission agreements in Kenya. Under common law as applied in Kenyan courts, an agent has authority to bind the principal in transactions with third parties within the scope of actual or apparent authority granted by the principal. Section 2 of the Agency Act principles, as developed through Kenyan case law in the High Court of Kenya and the Court of Appeal, establish that a commission is earned once the agent has performed the act that the commission is intended to reward — typically the introduction of a ready, willing, and able buyer or the closing of a sale.

Kenya's employment law framework must be carefully considered when structuring a commission agreement. The Employment Act No. 11 of 2007 defines an employee as any person who has entered into a contract of service with an employer. Where a commission agent is found to be an employee rather than an independent contractor, the principal faces obligations under the Employment Act, the National Social Security Fund Act No. 45 of 2013 (NSSF), and the National Hospital Insurance Fund Act (Cap. 255) (NHIF). To avoid reclassification, commission agreements should clearly state that the agent is an independent contractor with the freedom to work for other principals, bears their own business expenses, and is not entitled to employment benefits such as annual leave or sick leave.

The Kenya Revenue Authority administers taxation applicable to commission income. Agents resident in Kenya pay income tax on commission income under Section 3 of the Income Tax Act (Cap. 470). Where the principal is required to withhold tax on commission payments, withholding tax at the rate prescribed under Section 35 of the Income Tax Act applies. Agents registered for Value Added Tax under the Value Added Tax Act No. 35 of 2013 must charge VAT at 16% on taxable commission services.

The Competition Act No. 12 of 2010, administered by the Competition Authority of Kenya, prohibits anti-competitive practices. Commission agreements that restrict the agent's freedom to deal with competing principals or that fix prices at which the agent may sell may attract scrutiny under the Act if they substantially lessen competition in the relevant market.

Forms-legal.com provides this Kenya-specific sales commission agreement template reflecting the current statutory framework and Kenyan commercial practice, suitable for use across multiple industry sectors.

The legal framework governing the Sales Commission Agreement (Kenya) in Kenya draws on several key statutes and regulatory bodies. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Parties executing a Sales Commission Agreement (Kenya) in Kenya should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Law of Contract Act Cap. 23 sets the foundational requirements.

A Sales Commission Agreement in Kenya is required in various commercial situations where a business engages an external agent to generate revenue on its behalf.

First, manufacturers, importers, and distributors operating in Kenya frequently engage independent sales representatives to cover geographic territories — such as Western Kenya, Coast Region, or the Mount Kenya region — where the principal lacks a direct sales force. A commission agreement defines the territory, the products covered, the commission rate, and the minimum sales targets the agent must achieve.

Second, real estate agencies in Kenya, licensed by the Estate Agents Registration Board under the Estate Agents Act (Cap. 533), use commission agreements to formalise the terms on which a property owner authorises an agent to find a buyer or tenant. The agreement specifies the agent's commission — typically 1.5% to 2.5% of the sale price for property transactions — and the conditions under which the commission is earned and payable.

Third, insurance companies licensed by the Insurance Regulatory Authority under the Insurance Act (Cap. 487) use commission agreements with independent insurance agents and brokers. The Insurance Act and the Insurance (Agents) Regulations 2003 require commission agreements to be in writing and specify maximum commission rates for different classes of insurance business.

Fourth, technology companies, software-as-a-service providers, and fintech firms operating in Nairobi's Silicon Savannah — including players in the M-Pesa ecosystem — use reseller commission agreements with channel partners who market and sell their products and services to end customers.

Fifth, exporters of Kenyan produce, including tea traded through the Mombasa Tea Auction administered by the East African Tea Trade Association (EATTA), coffee sold through the Nairobi Coffee Exchange, and horticultural produce exported through EPZA-registered exporters, engage commission agents to support sales to international buyers.

Sixth, where the principal terminates a commission agreement before the agent has earned their commission on a pending transaction, the agent may have a claim for anticipatory breach under the Law of Contract Act (Cap. 23). A well-drafted agreement defines precisely when commission is earned and payable, preventing costly disputes.

Parties in Kenya should prepare a Sales Commission Agreement (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A strong Sales Commission Agreement in Kenya must contain the following key elements to be enforceable and commercially effective.

**Parties and Capacity:** The agreement must identify the principal and the agent by full legal name, registration details (company registration number or national ID), KRA PIN, and physical and postal address. The agent must have contractual capacity under Section 11 of the Law of Contract Act (Cap. 23), meaning they must be of sound mind and not a minor (below 18 years under the Age of Majority Act, Cap. 33).

**Appointment and Territory:** The agreement must specify whether the appointment is exclusive (the principal will not appoint other agents in the same territory) or non-exclusive. The sales territory should be defined by county, region, or sector in Kenya. Exclusive appointments carry greater obligations on both sides and must be carefully balanced.

**Products or Services:** The specific products or services for which the agent is authorised to generate sales must be listed. This prevents the agent from claiming commission on sales of products not included in the agreement.

**Commission Structure:** The commission rate (as a percentage of net sales or a fixed KES amount per unit sold) must be clearly stated. The agreement should distinguish between different commission rates for new customers versus existing customers, different product lines, or different order sizes. Tiered commission structures that increase rates upon achievement of sales targets are common in Kenyan commercial practice.

**When Commission is Earned:** The agreement must specify the trigger event for commission becoming due — typically either upon signing of a sales contract with the customer, upon delivery of goods, or upon receipt of payment from the customer. The last approach (commission on receipt of payment) is preferred by principals to align the agent's incentive with cash collection.

**Payment Frequency and Currency:** Commission payments in Kenya Shillings (KES) are standard. The payment cycle — monthly, quarterly, or per transaction — must be specified, together with the payment method (bank transfer to a specified account) and the deadline for payment after the trigger event.

**Reporting Obligations:** The agent should be required to submit regular sales reports — weekly, fortnightly, or monthly — detailing leads generated, quotations issued, orders secured, and customer feedback. Reporting enables the principal to monitor performance and verify commission claims.

**Independent Contractor Status:** A clear independent contractor clause distinguishing the agent from an employee of the principal is essential to avoid reclassification under the Employment Act No. 11 of 2007 and associated NSSF and NHIF obligations.

**Confidentiality and Non-Solicitation:** The agent should be prohibited from disclosing the principal's pricing, customer lists, trade secrets, and marketing strategies. Post-termination non-solicitation of the principal's customers for a reasonable period (typically 12 months) is enforceable in Kenyan courts, unlike broad non-compete clauses which may be void as restraints of trade under the Law of Contract Act (Cap. 23).

**Termination:** The agreement should specify notice periods for termination by either party and address the agent's right to commission on pipeline transactions at the date of termination.

Forms-legal.com provides this commission agreement template as a starting point; legal advice from an advocate enrolled by the Law Society of Kenya is recommended for high-value arrangements.

Additional compliance elements for a Sales Commission Agreement (Kenya) used in Kenya include: Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.