#corporateadvisory
10+1 Things to Remember as a Distributor Before Signing the Distributor Agreement
Khalid Khan
September 20
A distributor can be implied as someone who supplies goods to the shops or other businesses from the manufacturer. Distributors are therefore wholesale agents who connect the manufacturers to the seller.

Every company wants to make sure that their product reaches the customers. Sometimes, this means going to the market directly through distributors because not everyone will have the correct expertise for a particular market, while distributors of that product will. This is where the distribution agreement comes into the picture.

A distribution agreement is a document that creates the relationship of distributorship between the distributor and the manufacturer. It is a legally binding agreement between the distributor and the manufacturer which defines the terms of the relationship, thereby permitting the distributor to sell the products of the manufacturer or supplier. One thing to note here is that the supplier does not necessarily have to be the manufacturer, it can also be some other distributor who is reselling another manufacturer's products.

Therefore, while entering into a distributor agreement, there are many things that one has to remember in order to protect their business and rights.

Here are the things you need to remember as a Distributor before signing the distributor agreement.
1
Exclusivity. The most important thing to take note of while signing a distributor agreement is exclusivity. Check whether as a distributor you will be granted an exclusive right for that product or are there others with the same right as well. It is not a compulsion to grant an exclusive right to a distributor, but as a distributor you need to know your targets, understand what will suit you better; exclusivity or non-exclusivity and then sign the agreement accordingly.
2
Territorial Control. Exclusivity is one and the other is territorial control. This means that the distributor agreement should specify the designated area in which the distributor will be permitted to see the products.

The area where the distributor will have control is not just about territory and geography. This is important because one product can enter the market through various channels and in such a scenario it is very important to have the territorial control and exclusivity status properly outlined.
3
Specified Products. The relationship between a distributor and a manufacturer is dependent on the product. The marketing and selling of the product are the focal point. Therefore, make sure that the products or product is specified and all the important details about the same are specifically mentioned and known to you.
4
Duration. Apart from all the other important clauses, one that stands out is the duration. While signing a distributor agreement, the distributor should ensure that the agreement sets forth the term for duration; whether it is initial terms or it is a long-term contract. If it is on initial terms, how will it get renewed at what time are the questions that should be cleared out. Having a set duration along with other important clauses, will protect the distributor against any unfair practices or attempts to discontinue the agreement with the distributor on an invalid basis.

Apart from this, another important factor is that when a distributor enters an agreement, it is important to have a set duration so that the distributor can set goals for the products and also have a proper idea as to how he can deal with upcoming agreements.
5
Payments and Prices. The stand on exclusivity, territory and duration is clear. Now comes another very important clause that should be looked upon by the distributor before signing the distribution agreement which is the pricing and terms of payment. The price of the products and the resale price of the products must be set by the manufacturers.

And most importantly, the agreement must set out very clearly the terms of payment. This must include the time, mode of payment and even the penalties in case of delayed or missed payments.
6
Intellectual Property. While the supplier remains the owner of the product's intellectual property when a distribution agreement is signed the distributor has the legal right to use this intellectual property.

As a distributor signing the distribution agreement make sure that you read the clause thoroughly. You are getting the license to use the supplier's intellectual property so make sure everything is in order from your side.
7
Liability. Liability in simple terms is responsibility. It basically implies who will take the responsibility if any damage is caused to the third party or the consumer in this case. With the advent of product liability, where the manufacturer is held liable for any damages caused due to the product the liability clause has become increasingly important.

In most of the agreements, the liability for damages is on the manufacturer. But some distributorship agreements tend to shift this liability to the distributor. Although the courts will rule this attempt out, it is very important to have a thoroughly worded liability clause and the distributor should ensure that there is an effective indemnification clause in place which will limit the scope of the liability and protect the distributor.
8
Termination. When you enter any agreement, it is very important to prepare yourself for the aftermath. A distribution agreement should have a provision that allows termination on the basis of a valid cause by either of the parties.

Therefore, if one party violated the terms of the agreement, the other should have the alternative to terminate the contract to protect themselves against such violation.

What is important to note here is that there should not be a blatant termination clause. It should have enough room to solve any breach before the agreement is actually terminated. The content of this provision might vary from country to country.
9
Post-termination Obligations. As mentioned above, a solid agreement must always include the important clauses which can determine the nature of the whole contract. One such clause is also what will happen after the termination. This implies that distribution should ensure that there are post-termination obligations mentioned in the distribution agreement.

A clause like this makes sure that there is a way to deal with all the outstanding commitments and payments after the contract is terminated.
10
Dispute Resolution Clause. When two parties enter into a contract, disputes are bound to happen in some or the another way. The same is for a distribution agreement. The happening of a dispute might not be in your control but the handling of those disputes is.

Going to court is a very time-consuming and costly process. Therefore, for commercial contracts, ones like a distributor agreement, it is always a better alternative to have a dispute resolution clause.

The clause can be an international dispute resolution clause or a domestic dispute resolution clause depending upon the location and circumstances of the contract.
11
Leave the documentation to the lawyers. A distribution agreement is a very important document that will determine the whole contractual relationship between the distributor and the manufacturer.

The above-mentioned clauses are some of the most important things to remember while signing a distribution agreement. Although these remain the same, every distributor agreement has to be a personalized deed that will differ from person to person. Understanding the nitty-gritty of each of the clauses and terms is very important.

A distributorship agreement should specify the purpose of distribution and it should have all the requisite clauses. The language of the agreement has to be at par as it is a legally binding document.

Therefore, before signing a distribution agreement, have the correct people with the requisite legal knowledge on board and make sure to remember these things before taking the final step.
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