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Entering a Distribution Agreement is one effective strategy to expand your market reach. But like all business relationships, distribution arrangements work best when they’re effectively managed and monitored.
Using the services of a distributor, or going into business as a distributor, is a common business practice that all too often is left to a conversation and a handshake. If you are serious about your business, you will want to make sure your Distributor Agreements are drafted correctly and provide you and your business with strong legal protection.
A good Distribution Agreement is one that all parties can rely on so no-one is left in the dark.
WHO NEEDS A DISTRIBUTION AGREEMENT?
If you are a seller, manufacturer, distributor or sales professional, you should put your distribution and sales arrangement in writing so that your interests are protected and misunderstandings are avoided.
WHAT NEEDS TO BE IN A DISTRIBUTION AGREEMENT?
The agreement should be thorough ensuring that no issues are missed or stated wrongly. The products in question, advertising, supply chains, territories, the terms and length of the contract, all of these must be included.
A good Distribution Agreement makes it clear to all parties involved what they can or cannot do, and spells out clearly what their obligations to the other parties are.
AREA DISTRIBUTORS or AGENTS?
You can grant distributors the powers of an agent, or you can rely on them solely as distributors. A good Distributors Agreement will make it clear whether the distributor is also an agent, and if so, what their powers and limits are. An agreement that grants power to a distributor but does not clearly state whether the distributor is an agent is trouble waiting to happen. Be sure each party knows what to do, what their status is, and whether they are an agent.
WHAT ABOUT TRADE SECRETS?
You can provide for proprietary protections in a Distribution Agreements. If your business involves intellectual property, trade secrets or other confidential information, it’s important you draft a Distribution Agreement that clearly states the conditions under which these concerns are dealt with. Nothing is more troublesome than being unsure of what you can or can’t reveal when it comes to proprietary information.
CAN I BECOME AN EXCLUSIVE DISTRIBUTOR?
Sure, if it’s in the agreement. Some manufacturers have multiple distributors, some have regional or territorial distributors, and others have sole distributors. All of these can be granted exclusive or non-exclusive rights, depending on the terms of the agreement. Being knowledgeable of exactly what the Distribution Agreement states is essential whenever you consider entering into one.
HOW MANY DISTRIBUTORS CAN I USE?
If you are a manufacturer or party who uses distributors, the number you use is up to you. However, if you plan to grant exclusive distributorships, non-exclusive distributorships or other set-ups, you’ll need to make sure your distributors are aware of their responsibilities. You can run your business the way you wish, but ensuring each party knows what they can and can’t do is essential.
