For many businesses, expanding into new markets or scaling product sales means choosing the right distribution model. A distribution agreement can be a powerful way to reach more customers efficiently. However, without careful drafting it can also expose a business to significant legal and commercial risk.

It is important to strike the right balance between maintaining control over your brand and pricing, and enabling the distributor to operate effectively and drive growth.

What Is a Distribution Agreement?

A distribution agreement is a contract between a supplier (the manufacturer or producer of goods) and a distributor, who purchases the supplier’s products and resells them in an agreed territory or market.

Unlike an agent, who acts on behalf of the supplier, a distributor contracts in its own name. This distinction is important; distributors do not create a direct contractual link between the supplier and the end customer. The distributor takes on the commercial risk in return for the margin it earns on the resale of the products.

Key Legal and Commercial Considerations

Territory and Exclusivity

The agreement should clearly define the territory in which the distributor may operate and whether the arrangement is exclusive, non-exclusive, or it is agreed that the distributor is the sole distributor for the territory.

· Exclusive: only that distributor may sell in the territory, even the supplier is restricted.

· Sole: both supplier and distributor can sell in the territory but no other distributor will be appointed.

· Non-exclusive: the supplier may appoint multiple distributors.

While exclusivity can incentivise a distributor, it limits the supplier’s flexibility, meaning clear drafting of the scope, duration and any key performance targets are essential safeguards.

Pricing and Competition Law

Under UK competition law, suppliers must be careful not to fix resale prices or impose restrictions that unduly limit competition.

· Resale price maintenance (RPM) requiring a distributor to sell at a fixed or minimum price is prohibited under competition law.

· Recommended resale prices or maximum resale prices may be permissible if they do not amount to indirect price fixing.

Branding, Marketing, and Quality Control

Suppliers often wish to protect brand integrity by setting standards for marketing, product presentation, or after-sales service. These controls are legitimate if proportionate and clearly documented. Overly prescriptive controls, however, can stray into anti-competitive territory or discourage distributors due to onerous obligations.

Term, Termination, and Post-Termination Rights

Distribution agreements should specify:

· The initial term and renewal provisions for the agreement.

· Circumstances allowing termination for cause (for example, breach, insolvency, or failure to meet performance targets).

· The treatment of unsold stock on termination (i.e. does the distributor need to return it to the supplier)

Unlike commercial agency agreements, distributors do not benefit from the Commercial Agents (Council Directive) Regulations 1993, meaning there is generally no statutory right to compensation or indemnity when the relationship ends unless this has been contractually agreed.

Protecting Confidential Information and IP

The distributor often needs access to technical data, marketing materials, and trademarks. Robust confidentiality and intellectual property clauses should ensure these are used solely for promoting the products and returned or deleted upon termination.

Balancing Control and Growth

The most successful distribution relationships are built on trust, clarity, and shared objectives. The supplier must retain sufficient control to safeguard its brand and compliance obligations, while giving the distributor enough autonomy to respond to market conditions and grow sales.

A well-drafted distribution agreement can achieve this balance by:

· Clearly defining performance expectations and reporting requirements.

· Including measurable sales targets and review mechanisms.

· Providing for flexibility, such as revisiting territory definition as the market evolves.

· Having clear dispute resolution mechanisms, such as mediation or arbitration, embedded in the agreement to preserve commercial relationships.

Berry Smith Bottom Line

Distribution agreements are not ‘one size fits all’. They should reflect the parties’ commercial realities, risk appetite and long-term growth plans. By taking early legal advice and ensuring the agreement is both commercially balanced and legally compliant, businesses can expand their reach while protecting their interests.

Whether you are appointing a distributor or acting as one, professional legal advice at the outset can help safeguard your commercial interests.

Get in touch with us today to discuss distribution agreements on 02920 345511 or at commercial@berrysmith.com