What Is A Distribution Agreement?
Distributor Agreement / Distribution Agreement, When production is high, a producer might not be able to directly market or sell the things he produces to the public. To streamline the process, the Manufacturer employs a Distributor who promotes, ships, and sells the product throughout the nation or within a particular geographic region. The Distributor helps the Manufacturer fulfil its goals to meet its target audience by filling in the gaps left by the Manufacturer for selling and advertising its products.
The manufacturer and the distributor enter into a distribution agreement, which is legally binding between the parties, in order to prevent misunderstandings that might occur through verbal communication and to foster a more trustworthy relationship between the two.
TYPES OF DISTRIBUTION AGREEMENTS
Distribution Agreement is classified into 5 types, and choosing any one of these is based on the type of transaction you wish to perform.
- Agreement on exclusive distribution
- Non-exclusive Agreement
- Wholesale distribution agreement
- Distribution agreements for commission
- Developer distribution agreements
1. Agreement on exclusive distribution:
In Exclusive Distribution Agreement, there is one sole distributor who supplies the goods within a given geographical territory chosen by the Manufacturer. Whereas, exclusive agreement is also referred to restricting the distributor by making him to supply the products only to few clients.
2. Non-exclusive Agreement:
The manufacturer appoints more than one distributor and no one distributor is given exclusive rights
3. Wholesale distribution agreement:
Under this agreement, the distributor agrees to distribute things in bulk by contracting with a wholesale company, the selling can take place either in a Retail store for consumers or else directly to consumers. The wholesale distributor may at some event also buy the products in bulk himself by making him the owner, allowing him to re-sell the products to the consumers or company for profit.
4. Distribution agreements for commission:
Under this agreement, the distributor is entitled with commission based on the number of products sold by him. The distributor is given a percentage of the sales made in total by him, thereby encouraging him to make more sales and deriving a profit for both the parties.
5. Developer distribution agreements:
This agreement, engages how software and application developers want their products to be distributed. The developer offers the distributor to provide license to end-users or consumers to use its software.
CHECKLIST FOR DISTRIBUTION AGREEMENT
For giving you an outline on Distribution Agreement, a checklist on what is included in the Agreement is given below-
- Description of whether the agreement is exclusive or non-exclusive.
- The territory within which the distributor can sell the products.
- Specifications about the product and its qualities.
- Obligations set on the Distributor, strategies to be used for advertising and selling of products.
- Reasons for the termination of agreement whether with or without cause.
- The revenue which the Distributor will be entitled to after he has met the required delivery goals as set by the Manufacturer.
- The relationship between the parties, stating that the distributor is an independent contractor and not an employee to the manufacturer.
- When and how the payment will be made to the Distributor.
- The applicable law which shall be enforceable if there arises any dispute between the parties.
- The duration of the agreement to be valid and the effective date.
Distributor Agreement Format
Distributor Agreement pdf Download Sample
BENEFITS OF HAVING A DISTRIBUTION AGREEMENT
- As a manufacturer, by entering into this agreement, you are allotted with more time for yourself and your company to decide on the outlook, improving the product whether quality or quantity wise and ways on making your product to stand out from the Public.
- The distribution of the products gets easier with more generation of revenue as appointing a distributor solely for advertising and selling your products, gives you a positive result all together.
- As a manufacturer, you set proper guidelines for the distributor and use of specific assets, making your monthly/yearly revenue generation a much easier process.
- One example for this is, Mr. Tarun is engaged in distributing school materials to schools around Karnataka. He gets a request for Customized notebooks in the name of school where he supplies stationeries. But, Mr. Tarun is not involved in making customized books. To make it easier for him, he engages which Mr. Rakesh who manufactures customized book. Hence, they both enter into a Distribution Agreement to make sure that the supply is continuous to the school every month with the required target on book production.
GET DISTRIBUTION AGREEMENT DRAFTED BY A LEGAL EXPERT
Using a normal template which you may come across online is not the right template to be proceed with. As, such templates do not necessarily involve all the essential clauses which must be present since all the clauses in the agreement must be drafted keeping in consideration about the products to be delivered and the revenue generated. Hence, it is better legally to approach a Contract Lawyer / Corporate Lawyer who would look into every necessary aspect before drafting a Distribution agreement. We at VSK & CO Advocates and Legal Consultants draft commercial, corporate, IPR agreements from scratch to make sure that you do not face any legal consequence later.