A watertight distribution contract is the key to creating mutually beneficial and productive relationships between suppliers and distributors. Entering into distribution agreements is an effective way of penetrating new markets and territories, without the need for the supplier to establish a presence there themselves.
To leverage distribution agreements properly, it’s important to understand what they are, how they work, and the different types. This article offers you a brief introduction to distribution contracts and what you need to include in yours.
And if you’re looking for support in drafting your distribution contracts on a national or international scale, get in touch with our dedicated commercial contract team.
Additional Resource: Commercial Contracts: Everything You Need to Know
What is a distribution agreement?
Let’s start with the basics: what is a distribution agreement?
A distribution agreement is a legally binding contract that is typically between a distributor and a supplier or manufacturer of goods. They are also sometimes referred to as ‘wholesale distribution agreements’. They usually exist ‘vertically’, meaning they bring together two businesses that operate ‘at different stages of the same supply chain’.
Under this type of contract, the supplier and/or manufacturer agrees that the third-party distributor will buy their products or goods and then have the right to market and resell their goods under their own name. The distribution agreement governs the relationship between the supplier and distributor.
Who is a distributor?
A distributor could be defined as independent contractor that buys goods on its own account from an exporter or supplier and resells those goods to customers in their own territory.
Who is a supplier?
The supplier under a distribution agreement is the party that provides the goods or services to the distributor.
Types of distribution agreement
These are examples of some of the most common types of distribution contracts:
1. Exclusive Distribution Agreements
Under an exclusive distribution contract, the distributor gains exclusive rights to distribute the supplier’s goods either in specified territories or to a defined customer group.
It is important that this type of distribution contract is compliant with the Competition Act 1998.
2. Sole Distribution Agreements
A sole distribution agreement is similar to an exclusive distribution agreement. The difference is that the supplier retains the right to sell their own goods or services directly to the customers in the same territory as their distributor.
3. Non-Exclusive Distribution Agreements
As the name suggests, a non-exclusive distribution agreement is where a distributor gains the right to distribute the supplier’s goods, but they won’t be the only one doing so. The supplier is free to enter into a distribution agreement with a different distributor, or indeed, participate in the market themselves.
What to include in your distribution agreement
A distribution contract outlines and governs the terms of the relationship between a distributor and supplier. That’s why it’s so important to get expert support when you’re drafting or negotiating your business’ distribution agreement.
Here’s a brief introduction to the kinds of clauses and information you should consider including in your distribution contract:
- Duration of the contract (when it starts and when it ends)
- The supplier’s products in question & how much they will cost the distributor
- Relevant duties and responsibilities of either party
- Minimum sales or quantity of goods
- Whether or not the contract is exclusive
- Relevant territory, meaning where the distributor has the right to operate and sell the supplier’s goods
- How either party can go about terminating the relationship and relevant consequences
- Agreements around use of Intellectual Property
- Confidentiality clauses
How to Write a Watertight Distribution Agreement
It can be tempting to use a free online template for your distribution agreement. However, it’s important to realise that every distribution relationship will look slightly different. Your distribution agreement should be carefully crafted to reflect and accomodate your particular needs, industry, market, and the nature of the relationship you are seeking to establish. Without expert input, you risk exposing yourself to legal liability or, worse, a dispute.
Our dedicated commercial lawyers offer substantial experience in drafting and negotiating international distribution agreements. We guide and work out strategies with our clients, offering advice around what kinds of sale and distribution terms they should include in their contracts. Because of our international footprint, we’re able to support on international contract negotiations – always taking jurisdiction-specific laws into account.
Find out more about working with us.
FAQs about Distribution Agreements
1. What is a distribution agreement?
A distribution agreement is an agreement between a supplier and distributor. It governs how, where and for how long a distributor has the right to sell the supplier’s goods.