Overview of a Distribution Agreement
What is a Distribution Agreement?
A Distribution Agreement is a legally binding agreement between two parties; one is responsible for supplying the products to sell and another party markets and sells the products under predefined terms.
A Distribution Agreement sets out the obligations and responsibilities of both entities to sell products/provide services to clients within certain geographical areas. It gives a distributor the right and duty to sell and market the supplier’s products for a fee or a commission.
What should a Distribution Agreement include?
A Distribution Agreement can be used to set out the terms and conditions of a distribution arrangement. Whether you are the party supplying or distributing the goods or products, it is important that you specify the terms of your cooperation from the start so you can avoid misunderstandings during the course of your relationship. These are the important things to include in a Distribution Agreement:
Defining the territory: The geographic limitations of the distribution of products or services must be set out in order to avoid conflicts between several distributors.
Product line: The supplier should specify the products or services that the appointed distributor can sell or market, and if there are any products or services that the distributor is not allowed to market or sell should be clearly mentioned in the distribution agreement.
Acceptance of orders and shipment: This section sets out if the distributor’s conduct regarding orders and shipment, where it specifies which orders should be accepted, and the methods that should be followed in shipping these orders, and the conditions and terms of refunding and compensating clients or customers.
Appointment of the distributor: The appointment of a distributor may be exclusive or non-exclusive depending on the intent of the supplier. So, it should be clearly mentioned whether the distributor is only one in the region or there are multiple distributors.
Termination: There are several obligations that may remain effective after the termination, which can be a non-competition clause, or returning or repurchasing products that are in the distributor’s possession.
Payment terms: It should be clearly written on the agreement whether the payment is commission-based or there is another form of payment terms, the deadline for paying the amount, etc.
Term of the agreement: This section deals with the length of time for the appointment of the distributor. It also includes any terms related to the renewal of the appointment.
What is the purpose of a Distribution Agreement?
A distribution Agreement is also referred to as the distributor contract, is a legally binding contract between a supplier of products or services, and any entity that sells or provides services to the clients, referred to as a distributor. The distribution agreement gives a distributor the right and duty to sell and market the supplier’s products for a fee or a commission, the distributor markets the product so the supplier doesn’t have to worry about how to get its products into the right hands. These agreements are also known as product distribution agreements and distribution rights agreements.
Exclusive and Non-exclusive Distribution Agreement
When the distributor and supplier sign an agreement that grants exclusive distribution rights to the supplier to deal with a specific item it is called an Exclusive Distribution Agreement. Here, This gives the supplier a competitive market edge.
Non Exclusive Distribution Agreements, on the other hand, do not give any specific rights to the supplier.
Can you terminate a Distribution Agreement?
Yes, all parties are allowed to terminate a distribution agreement. They can determine when, how and under what conditions it ends. It is important to note that these agreements have a fixed term and are automatically renewed if they are not terminated. So, they have to be manually terminated and it needs to be done in writing. However, the conditions and causes for termination can vary.
There can be an early termination which is before the term ends; or there can be urgent and immediate ones, for instance, if either of the party does bankrupt. Termination can also occur if there is a breach of contract.
A distributor is a company that plans to market and sell the products, whether to the public or to the companies. Businesses use this Distribution Agreement to increase the sales and market their products by segregating the duties and responsibilities of the distributor.
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