Whether you’re a manufacturer looking to expand your market reach or a distributor wanting to sell a product range, having a clear and well-drafted distribution agreement is essential. This article outlines the basics of distribution agreements to help you understand your rights, obligations, and key considerations.

What Is a Distribution Agreement?

A distribution agreement is a legally binding contract between a supplier (typically a manufacturer or wholesaler) and a distributor. The supplier agrees to supply goods to the distributor, who in turn agrees to sell them on to customers, often within a specific territory.

These agreements are commonly used when a supplier wants to enter a new market or region but does not want to sell directly to customers there. Instead, the distributor takes on the responsibility of marketing and selling the goods.

Types of Distribution Agreements

There are two main types of distribution arrangements:

· Exclusive Distribution: The supplier agrees to appoint only one distributor in a defined territory. This gives the distributor greater security and control but limits the supplier’s flexibility.

· Non-Exclusive Distribution: The supplier may appoint several distributors in the same area or even sell directly. This gives the supplier more freedom but offers the distributor less market protection.

Key Terms to Include

A well-drafted agreement should clearly set out the roles and responsibilities of each party. Common provisions include:

· Territory: Define the geographic area the distributor can operate in.

· Products: Specify which goods are covered.

· Term and Termination: How long the agreement lasts and how it can be ended.

· Performance Targets: Minimum purchase volumes or sales targets.

· Pricing and Payment: How prices are set and when payments are due.

· Intellectual Property: Protection of brand names, trademarks, and logos.

· Confidentiality: Obligations to keep business information private.

· Liability and Risk: Clarify when the risk in the goods passes and who is responsible for what.

Legal Considerations

Under the laws of England and Wales there is no specific legislation governing distribution agreements, so they are largely governed by general contract law principles. However, some legislation may need to be considered, including:

· Competition Law: Agreements that restrict competition—such as price fixing or market sharing—may be unenforceable under UK competition rules.

· Consumer Protection: Distributors who sell directly to consumers must comply with consumer rights legislation.

Berry Smith Comment

Distribution agreements can be a valuable tool for expanding your business, but they must be tailored to your specific needs and comply with legal requirements. It’s wise to seek legal advice when negotiating or drafting these agreements to ensure your interests are protected.