What Is a Distribution Agreement?
A Distribution Agreement is an arrangement whereby one person, the distributor, purchases goods from a supplier and resells them. Suppliers often appoint distributors in order to sell their goods into a particular market or country in which the supplier has no presence.
When a supplier appoints a distributor, each purchase of goods by the distributor from the supplier will constitute a separate contract. However, that contract will be governed by the terms of the distribution agreement. It is therefore helpful to have a Distribution Agreement in writing between the parties so that the agreed terms between them are clear.
Distribution agreements will generally include the following provisions:
- What goods or products the agreement relates to
- Limitations on the distributor as to where he can do business
- Limitations on the distributor against selling competing products
- Limitations on the supplier on appointing other distributors
- The main duties of the distributor in terms of marketing and minimum purchase levels
- The main duties of the supplier, for example to provide know-how and technical support
- Pricing and payment provisions
- Termination provisions
- Limitations of liability
Distribution Agreements must be distinguished from Agency Agreements. While superficially similar, they are very different in law. In an agency relationship, the agent (who is equivalent to the distributor) does not make any purchase on his own account. Instead, the agent may be authorised to make sales on behalf of the principal (equivalent to the supplier), in return for commission.
Agency agreements are governed by legal regulation which gives certain rights to the parties, for example, the right to receive compensation on termination of the Agency Agreement. There is less legal regulation of Distribution Agreements and distributors are not generally entitled to compensation on termination of the Distribution Agreement in UK law. However, in some foreign jurisdictions this right does arise.
Types of Distribution Agreements
Under an Exclusive Distribution Agreement, the supplier appoints one distributor in a defined territory who has rights to sell the supplier’s products. The supplier can’t sell directly to customers in this specific territory either.
This agreement is commonly used when a company is expanding into new territories
This type of agreement means the supplier appoints one distributor in a defined territory. Under a Sole Distribution Agreement, the supplier reserves the right to sell to customers in that territory, unlike an exclusive distribution agreement.
A Non-Exclusive Distribution Agreement means the supplier can appoint as many distributors as they see fit within a specific territory.
Under Selective Distribution Agreements, suppliers would create a network of distributors that meet certain criteria in order to deal with a product when it needs special treatment. This could mean enhanced services, expert advice at sale, and after-sale support.