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Distribution Agreements

What is a Distribution Agreement?

A distribution agreement is a form of commercial contract that exists between the manufacturer/wholesaler/supplier of the goods and the distributor in a set geographical area. To improve the sales of their products, manufacturers collaborate with distributors that use varied marketing techniques and multiple platforms to sell their products. 

The purpose of a distribution agreement is to prevent costly legal disputes and misunderstandings between suppliers and distributors. It clearly states the rights of both the parties and the profits they can make from the sale. 

Each distribution agreement is unique for every supplier and distributor. Need help understanding a distribution agreement? Contact our team of experienced lawyers today.  

Parts of a Distribution Agreement

Common clauses of a distribution agreement are:

  • Terms Of Use And Rights - This section clearly defines which goods/ services provided by the supplier can be sold by the distributor. It also states whether the distributor can modify and sell the product.
  • Term Of The Agreement - How long will the agreement last? Who can terminate the agreement and under what circumstances? What are the rights that survive after the termination?
  • Renewal - How and when can the agreement be renewed? 
  • Territory - This section notes the area the distributor can cover. It could be a suburb, town, city, state, or an entire country.
  • Exclusivity - This clause states whether the supplier can involve other distributors in the process.
  • Payment Terms - In this clause, the supplier lists the modes of payment, and also consequences in case of a failed payment.
  • Delivery - This clause entails all the information regarding delivery responsibilities and payments. Who will book the delivery and pay for the freight services? Who will bear the costs if a damaged good is delivered?
  • Quality Control - This clause is very important. It lists who is responsible for overseeing quality control and what happens if the quality of the product is compromised. 
  • Permitted Marketing Activities - The supplier can prescribe the ways they want their product to be marketed. They can also let the distributors know their target audience.
  • Sales Target - This clause ensures that the distributor must meet some key performance indicators (revenue generation and total sales) and provide the supplier with a transparent financial report.
  • Liability - In this clause, both parties clarify the party at risk, in the event any of them fails to comply with its contractual obligations. For example, in case of delayed, damaged or non-delivery of products to the customers, the supplier has the right to pass this liability on to the distributor.

The distribution agreements can vary from being simple to complex depending upon the goods on offer. It may also have variations in clauses depending upon the nature of the relationship.  

Types of Distribution Agreements

Different companies use different types of distribution agreements. Choosing the right distribution agreement is very crucial because it outlines contractual obligations that protect the rights of suppliers and distributors. Here's a brief summary.  

Exclusive Distribution Agreement

An exclusive distribution agreement is a type of agreement in which the supplier grants the distribution rights to a single distributor. In this case, the distributor becomes the sole authorized seller of the supplier’s products in a particular market or geographical area. Businesses that often engage in exclusive distribution agreements are high-tech electronics companies, car manufacturers, major appliance manufacturers, etc.  

Wholesale Distribution Agreement

The wholesale distribution agreement is a type of agreement in which a wholesale company that produces products in bulk at cheaper rates collaborates with a distributor for the sale of its products. This type of agreement allows the distributor the freedom to become the sole owner of the products and sell it to a retail company or directly to the customers.  

Distribution Agreement for Commissions

Distribution Agreement for Commissions is set in place to promote maximum sales and ensure benefits to both parties. Such agreements usually have a clause that states how much will the distributor be paid for meeting and exceeding a set sales requirement. This is a way for distributors to earn commissions for their hard work and be encouraged to sell more products.

Developer Distribution Agreement

Developer distribution agreements is an agreement between the developer of software and the distributor of the software. This outlines the legal bindings of their relationships, the profits and IP rights they are entitled to. Big names that engage in developer distribution agreements are Google and Amazon.

Who Needs a Distribution Agreement?

Distributors engaging in any type of trade with suppliers/ manufacturers/ wholesalers/ software companies/ appliance brands/ automotive companies/beauty product makers need a distribution agreement to establish the foundation of their business relationship, clarify legal liabilities, set certain rules and obligations.

Before negotiating and signing a distribution agreement, both parties should consult a qualified lawyer to protect their rights and avoid legal complications in the future.  

How Can We Help?

EAGLEGATE Lawyers has a team of commercial lawyers with over ten years of industry experience. We have provided legal advice and professional insight for many businesses and helped them settle legal disputes in court. When it comes to  distribution agreements, we can help our clients in many ways:

  • We can draft and review the agreements.
  • Negotiate the terms and conditions.
  • Simplify the terms of the contract for better understanding.
  • Make changes to an old agreement before renewal.
  • Represent the party in the court in case of a dispute.

Want a well-drafted distribution agreement? Get in touch with us today and we’ll get started with the process. We will draft a contract after discussion with you to determine your desired outcomes. We ensure your business’ rights are protected under all circumstances.

Call us for a free initial consultation today.


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