A distribution agreement is an arrangement whereby one person, the distributor, buys goods from a supplier and resells them.
Suppliers often appoint distributors in order to sell their goods into a particular market or country in which the supplier has no presence. Some distribution arrangements, at first blush, look like types of franchise agreements or agency agreements. In order to avoid scope for legal dispute it is important, from the outset to make sure that the legal relationship is clearly understood.
When a supplier appoints a distributor, each purchase of goods by the distributor from the supplier will constitute a separate contract. However that contract will be governed by the terms of the distribution agreement. It is therefore helpful to have a distribution agreement in writing between the parties, so that the agreed terms between them are clear.
Distribution agreements will generally include the following provisions:
What goods or products the agreement relates to
Limitations on the distributor as to where he can do business
Limitations on the distributor against selling competing products
Limitations on the supplier on appointing other distributors
The main duties of the distributor in terms of marketing and minimum purchase levels etc.
The main duties of the supplier, for example to provide know-how and technical support etc.
Pricing and payment provisions
Limitations of liability
Finally, distribution agreements must be distinguished from agency agreements. While superficially similar, distribution arrangements are in law very different from agency agreements. In an agency relationship, the agent (who is equivalent to the distributor) does not make any purchase on his own account. Rather, the agent makes sales on behalf of the principal (equivalent to the supplier), in return for commission.
Agency agreements are governed by legal regulation which gives certain rights to the parties for example the right to receive compensation on termination of the agency agreement. There is less legal regulation of distribution agreements and distributors are not generally entitled to compensation on termination of the distribution agreement in UK law (although in some foreign jurisdictions such a right does arise).