Distributor agreements allow manufacturers to sell goods to businesses that will, in turn, offer them to third parties. A robust, well-drafted agreement is essential to ensure that both parties understand their obligations and to avoid misunderstandings and disagreements.
The Agreement Between Manufacturer and Distributor
An agreement between manufacturer and distributor can be referred to in several ways, including a distributor agreement, distribution agreement and distribution contract. In the UK, these agreements set out the terms and conditions agreed on by a manufacturer and distributor.
Do I Need a Distribution Agreement?
Selling goods for distribution is a popular way of growing a business, with a manufacturer agreeing with another party who will ultimately be responsible for selling items. It allows an enterprise to expand its market relatively easily, as the recipient of the goods will be the party doing the hard work of selling to a wider range of buyers.
A comprehensive distribution agreement is essential if you are considering this option. There is wide scope for disputes if the details are not dealt with at the start. If you are the manufacturer, you will want an element of control over the sales methods, marketing and advertising that the distributor will undertake in respect of your product.
As the distributor, you will want the freedom and flexibility to sell in a way that you believe you can make profitable. You may also want certain assurances, such as being the only distributor in an agreed area.
We can advise you of the right clauses to insist on in your distribution agreement and represent you in negotiating the terms and conditions that will protect your interests as far as possible.
Key Clauses in a Distribution Agreement
If you ask us to represent you in putting a distribution contract in place, we will tailor the agreement to your needs and the commercial objectives of your business. Key clauses commonly contained in a distribution agreement include:
- How frequently orders will be fulfilled and any minimum order level
- How payment will be dealt with
- What are the distributor will sell in and whether any other distributor will be selling in that area?
- How the distributor will market the product, including control over the advertising content used by the distributor
- Warranties made by the manufacturer with respect to the goods
- Indemnities by the distributor in respect of their activities, such as complying with legislation in the country of distribution
- How returns will be dealt with
- How the contract can be ended
- How disputes will be dealt with, for example, the requirement to try alternative dispute resolution before turning to litigation
The Differences Between a Distribution Agreement and an Agency Agreement
A distribution agreement is made between the company where the goods originate and the party who intends to sell them. It sets out the terms and conditions of the sale.
Under the terms of an agency agreement, an agent will not be purchasing the goods themselves but agrees to introduce the manufacturer to potential purchasers. The agent will not have legal title to the product at any point but will be paid a commission. This type of agreement is more often used when goods have a fairly high value.
When are Distribution Agreements Used?
Distribution agreements are used when a business wishes to expand but does not want to deal with end sales. For example, it can be used by a business wishing to start selling in a new territory.
It is particularly useful for lower-value items, where the distributor can purchase them for onward sale.
Exclusive, Sole and Non-Exclusive Distribution Agreements
There are several different types of distribution agreements, including:
- Exclusive distribution agreement
- Sole distribution agreement
- Non-exclusive distribution agreement
Exclusive Distribution Agreement
An exclusive distribution agreement means that the distributor will be the only person with the right to sell the product within a certain defined area. The supplier contracts not to give anyone else permission to sell in that territory. This type of agreement is often used when a distributor is offering a product in a new country.
Sole Distribution Agreement
Sole distribution means that the supplier will only appoint one distributor in a country or territory. This means that all purchasers in that area will have to deal with this supplier.
Non-Exclusive Distribution Agreement
Non-exclusive distribution means that other distributors could sell in the same area as the distributor, including the supplier. Fewer restrictions will be imposed on the distributor as they will need some flexibility to compete.
Distribution Agreement Disputes
A clearly drafted distribution agreement will help those involved to avoid a dispute. It should also include a process for dealing with any difficulties that arise, such as mediation or arbitration.
If you do end up in a distribution agreement dispute, you are strongly advised to speak to a solicitor straight away. Our commercial dispute resolution team can advise you of your rights and discuss the options open to you.
We will give you an honest assessment of the strength of your position and suggest ways to try and resolve matters.
Involving a dispute resolution solicitor early on can prevent a disagreement from escalating. Looking at potential solutions before positions become entrenched generally has a higher success rate than later intervention.
Our Distribution Agreement Solicitors
Our commercial lawyers represent manufacturers and businesses in putting strong distributor agreements in place. We can work with you to identify your needs and negotiate on your behalf to secure the best deal possible.
We have a wide commercial understanding and will always take the time to understand your business and your objectives. Contact us to speak to one of our expert distribution agreements solicitors about your requirements.
To speak to one of our distributor agreement lawyers, email us at info@witansolicitors.co.uk or fill in our contact form and we will talk through your situation with you and discuss how we can help.
