What is a distribution agreement?
A distribution agreement is a contract used by suppliers or manufacturers to engage with a distributor to distribute products in a particular territory. It is a contract that sets out the terms and conditions between a supplier and distributor to resell products at wholesale or retail level. The distributor first purchases the products from the supplier and then resells the products to customers in the territory.
A distribution agreement template will also specify if the distributor’s rights to resell will be exclusive to the territory or if other companies can also distribute the products (i.e. an “exclusive” or “non-exclusive” distribution agreement).
Why use a distribution agreement?
To promote products and reduce risk: The success of a business is often determined by how well it can distribute its goods or products. Entering into a distribution agreement can be advantageous for both companies to profit from the products whilst reducing risks on both sides. If carefully drafted, a distribution agreement can protect both parties and clearly set out their intentions by defining the products, where the distributor will have the right to resell and the terms that will govern each sale.
Expand into new markets: Partnering with a distributor can help increase sales and build a supplier’s customer base in new territories and larger markets. Distributors tend to know their territory thoroughly and will already have access to established sales channels to resell the products. A distributor can enhance a supplier’s reach to businesses or consumers without the need for local market knowledge or a physical presence in the territory.
Protect intellectual property (“IP”): It is important to expressly set out that each party will continue to own their existing IP and whether a party may use the other’s IP (such as trademarks) to sell the products. The distribution agreement can also clarify which party will own any new IP that is created in connection with the products after the distributor has purchased them for resale.
What information does a distribution agreement include?
Key provisions: This distribution agreement template contains key provisions in relation to:
- products to be distributed;
- where the distributor can resell the products;
- limitations on the supplier to appoint other distributors;
- restrictions and obligations on the distributor;
- pricing and payment terms;
- intellectual property right protections; and
- the process for product recall and insurance (if applicable).
Exclusivity: This distribution agreement template also contains optional clauses to establish if the distributor will have the right to sell the products in the territory with sole rights, or on an exclusive or non-exclusive basis.
• Sole rights - An appointment of sole rights under a distribution agreement restricts the supplier from engaging any other distributors, however, the supplier can still sell the products directly to customers in the territory.
• Exclusive rights - An exclusive distribution agreement gives the distributor the right to be the only distributor selling the products within a specific territory. It limits the supplier from reselling the products to customers or engaging other distributors in the territory.
• Non-exclusive rights - A non-exclusive distribution agreement allows the supplier to appoint other distributors to resell the products in the territory.
This distribution agreement assumes that the parties are contracting B2B, that they are incorporated in the UK, and that English law applies.
Docue creates templates that are customised to meet your needs
Tailored to protect your interests: This distribution agreement template contains alternate clauses depending on whether you are the supplier/manufacturer of the products (known as the company) or the distributor.
What are the differences: For example, in the pro-distributor optional clauses, there is the freedom to carefully select terms that are in favour of the distributor to avoid unintentionally limiting the ways in which the distributor can resell and market the products. However, in the pro-supplier/company optional clauses, the supplier is able to choose how strict or relaxed the obligations of the parties will be and if there will be a minimum quantity of products that must be purchased by the distributor annually. A list of “reserved customers” can also be included to allow the supplier to sell the products to certain customers in the territory even where the distributor has exclusive rights.
Other distribution and supply of goods agreements
When should this template be used: This distribution agreement template should be used where a supplier or manufacturer is looking to appoint a distributor to resell or distribute its products in a particular territory.
When should the supply of goods agreement template be used: The products that are sold under the distribution agreement will be governed by their own terms and conditions that are separate from the terms of the distribution agreement. A supply of goods agreement will contain the commercial terms and conditions relating to the goods, whereas the distribution agreement governs the relationship between the supplier and distributor to distribute the products. Our Supply of Goods Agreement template can be found here.
When should the reseller agreement template be used: A distribution agreement can sometimes be known as a “reseller agreement”, and you can change the template's name to this if you prefer, although a reseller agreement is more commonly used for the resale of software products. If the products being resold consist of software rather than goods, the template reseller agreement would generally be more appropriate. Our Reseller Agreement template can be found here.
Why Docue?
With Docue, you can create a high-quality distribution agreement in minutes. The service includes model clauses designed by business lawyers to help you draft the contract yourself and tailor it to your needs.
Signatures can be collected electronically, and all contracts you make are saved in your company's own contract account.
Tags: distribution agreement, distributor, distribution of products, reselling goods and services
