A distributor distributes products made by product manufacturers to retailers. In a sense, a distributor acts as an intermediary between manufacturer and retailer.

For example, an American company that manufactures electronic supplies could select an Australian company to distribute (i.e. sell) its products to electronics retailers in Australia. It is not uncommon for a company to nominate various distributors to manage different locations within Australia or internationally.

What is a distribution agreement?

A distributions agreement governs the terms and conditions of the business relationship between the manufacturer of a product and the company in charge of the distribution of that product to various retailers. The agreement determines the levels of supply of the different products, along with the responsibilities and expectations of each party to the agreement. It is imperative that a business solicitor assists with the drafting of the agreement so that the agreement is adequately protective of your business’ various interests.

What are the essential components of a Distribution Agreement?

There are several essential components to any Distribution Agreement that your business lawyer should make you aware of, including:

  • Exclusivity clause – Will the distributor have any exclusive rights to distribution of the various products or will other companies also have responsibilities over distribution? This is important to draft into the Agreement, as it makes all distributors aware of each other.
  • Geographical limits – It is essential that your business lawyer draft into the agreement any limitations to be imposed on the area in which the distributor has rights to sell and distribute the product(s). This is essential when there is more than one company distributing in the same country.
  • Pay structure – What will the pay structure be? Have your business lawyer draft an explicit clause that explains payments. Will commission form the basis of the payment structure? Is it based on sales/revenue? The most appropriate payment structure may depend on your product.
  • Term – This simply explains how long the agreement will last. Make sure your lawyer drafts any options to renew into the agreement that are based on compliance in the initial term.
  • Dispute Resolution – What methods of resolving disputes will your business lawyer draft into the agreement? Mediation? Conciliation? Negotiation should always be the first point of call, as it requires the least formality and is usually the most affordable approach.

Conclusion

It is always a good idea to get a business solicitor or a contract solicitor to at least review the agreement that you’re considering entering. This will ensure you and the other various parties are completely aware of their respective rights and responsibilities under the Agreement. In the event that there is a dispute, the terms and conditions of the Agreement should be drafted such that there is no confusion as to who is responsible for what.

Be wary of taking advantage of free templates or precedents. Your circumstances will inevitably be unique and a business lawyer should play some part in advising you on the most appropriate form and structure of a Distribution Agreement. Give your business the protection it requires by formalising the agreement with an experienced business lawyer.

To get the ball rolling, contact LegalVision on 1300 544 755.

Lachlan McKnight

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