A distribution agreement is a contract made between a supplier of goods and a distributor of goods. The supplier may be a manufacturer selling their own goods or could also be a distributor selling goods made elsewhere. Distribution agreements are either categorized as exclusive or non-exclusive. The agreement often expires annually with a semiautomatic renewal clause. It should allow the parties to terminate for cause or convenience.
An exclusive distribution agreement is where the supplier agrees with the distributor that the supplier will not supply goods to any other customer within a certain area or will not supply goods to a particular group of customers. In return, the supplier may require the distributor not to sell rival products.
Advantages to an exclusive distribution agreement include the fact that the distributor’s salespeople can be more knowledgeable about a single product, greater control for the supplier over how the product is marketed and lack of competition from other distributors who may try and sell the product at a reduced price.
A non-exclusive distribution agreement allows the supplier complete freedom to sell the product to as many distributors as they wish and any areas. They are also able to sell the product directly to consumers themselves.
A sole distribution agreement is where the supplier deals with a single distributor in any given area. The supplier will not supply goods to any other distributor, however, the right is reserved to sell goods themselves directly to the consumer.
A distributor takes ownership of goods and takes payment and any profit from the consumer. An agent does not own the goods and receives a commission from the supplier. The agent procures orders which are filled directly by the supplier. A distributor will hold stock themselves. Agents often service fewer suppliers while distributors can have many different companies supplying products.
Depending on the terms of the distribution agreement, price controls can be written into the agreement. Other terms can also be included, such as the amount and substance of marketing campaigns and the amount of stock to be maintained by the distributor. In return, the supplier may offer assistance with marketing or a contribution towards marketing costs.
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