A Distribution Arrangement is made between the supplier (principal) who sells his goods to the distributor. The distributor will then, as a separate transaction, sell the goods to his customer. There is no contract of sale between the supplier and the ultimate purchaser of the goods.
Put simply, the distributor will buy the goods from the supplier and sell them on to its customer.
Key clauses in a Distribution Agreement
A Distribution Agreement should contain the following clauses:
- A detailed breakdown of the duties and responsibilities of both parties
- The geographic region in which the Distributor will operate
- Whether the Distributor will have exclusive or non-exclusive rights
- The rate, method and timing of payments
- Any non-compete agreement
- Protection of trade secrets and confidential information
- Supply of goods and minimum stock levels
- The duration of the agreement, termination and how breaches of the agreement are handled
- The principal’s option to buy-back products on termination of the agreement
- Although there should be terms and conditions of sale in place between the principal and distributor, it is less important for the supplier to be concerned with the terms on which the distributor sells on to his customer as it is the distributor who will be liable to the customer, not the supplier.
For anyone setting up a distribution network, a Distribution Agreement is key to its success. Your profits and future success may be significantly affected if, for example, you are prevented from operating in certain geographic areas or do not have exclusive rights to sell a product. You need to be very clear about the terms you are signing up to and seek legal advice if at all unsure about your rights.
If you would like help or advice in relation to a Distribution Agreement, contact one of our specialist business solicitors at Truelegal.