A distribution agreement is a legally binding relationship between products producing entity and goods distribution agency. In this situation, the retailer may be either a producer or another company who resells another supplier’s products.

Team Law Community
May 12, 2021


A distribution agreement is a legally binding relationship between products producing entity and goods distribution agency. In this situation, the retailer may be either a producer or another company who resells another supplier’s products. The dealer is a corporation which plans to market and distribute the goods, whether to the public or to other businesses. The terms of the arrangement, including the cost of the product or the commission rate, the duration of the contract that the seller will work upon and other essential details, are specified in the delivery contract.

The Need of Distribution Agreement

An informal sales arrangement will still come up between manufacturers and distributors. In reality, many do, but with one or both businesses, these verbal arrangements often result in misunderstandings that can be quite troublesome. The parties can ensure that they are both transparent on all facets of the agreement by establishing and drafting a contract that sets out all the essential terms of the transaction, ensuring that they both live up to their end of the deal. A written arrangement also offers procedural rights and redress for the wrongful party if one party fails to live up to the deal’s provision. It is also crucial for each agreement to ensure that these contracts are tailored. This is valid not only because each deal is subject to varying terms, but also because the intent of delivery contracts will vary dramatically.

Clauses in Distribution Agreement

1. Standard of performance- The manufacturer should have some benchmarks and performance requirements that the dealer would like to uphold. The consistency would have to be tracked, either by sales expectations or minimum purchase orders. This will ensure that exclusive agreements are justified. 

2. Promotional and marketing strategy- The distributor's minimum production requirement can be related to a provision where, if such a standard is not met, the manufacturer may designate additional distributors.

This is another area that both sides need to be consistent about who is responsible for publicity and advertising, and both parties often do so. If it is the distributor’s responsibility, then how and what will be used as particular assets, to market or sell the goods for sale would have to be made clear. They may require the supplier to follow clear criteria relevant to branding. In deciding each party’s responsibility, whether the distribution arrangement is exclusive or non-exclusive plays a huge role.

3. Vocational training and support -Training becomes one of the main words of such a sales arrangement as it includes more advanced goods. The manufacturer would need to explain the amount of preparation and service they will give to the dealer and whether they will be required to use the product to teach any end-customers. What kind of technological know-how is needed, what kind of preparation are they going to have to attend, who will pay for this training. Distributors can also watch out for the manufacturer's assistance they would get. Distributors should assume, for instance, whether the manufacturer would be:

  • Distributor page on their website;
  • Moving inquiries to the supplier; or transferring inquiries to the seller
  • In their publicity materials, like the dealer.

4. Competency- Of certain distribution deals, the competition clause is a big one. It puts limits on the dealer from buying any producer related goods. Furthermore, it may prohibit the dealer from competing with the producer before or after the duration of the delivery contract.

5. Trademark Licensing- The producer shall note the terms and conditions relating to the use by the dealer of its intellectual property, including brand names and trademarks. To prevent violating its sole control of the intellectual property, the producer needs to be very vigilant when awarding these rights to the seller.

6. Termination clause- In order to prevent a lawsuit, in the event that if the things fell out, the termination provisions should be listed in the arrangement. A termination provision can be added by the manufacturer according to its convenience and preference. However, it is not appropriate to disregard the unsolved business-like due payments and the seller’s merchandise.

7. Payment Details– In a sales deal, one of the most relevant details is how the seller can receive cash, whether by the fee due to the sale of the goods or money left from purchasing the products wholesale and then selling them for a profit. The contract should also detail the unpurchased inventory deals, though the contract is set up, and whether there are any minimum or maximum rates at which the distributor must deliver the goods.

8. Forecasting Details- Much as it can be anticipated that the dealer can satisfy minimum distribution criteria, the retailer will be needed to fulfil minimum supply requirements. The distributor may also often be forced to buy a certain quantity of the items. This minimums will be based on predictions that will be put out regularly at intervals specified in the contract over the term of the agreement.

9. Marketing Rights- The duty can be left to the seller, the retailer or both, for selling the product. If the seller promotes the product, the supplier may detail what assets it may use to advertise the product, what practices it carries out for promotional purposes, and what standards it may comply with about the branding of the supplier.

10. Exclusive/ Non-Exclusive Appointment- An exclusive arrangement means that a seller is the sole distributor of the product, although it is just the reverse of a non-exclusive agreement. The producer demarcates the area where the goods must be distributed by the dealer. Non-exclusive arrangements, however, also result in rivalry within the network.