A distribution agreement is a contract made between the manufacturer of a product and the person or company who distributes and sells the product. The distributor will generally sell the product to a third party, a dealer, who will then sell the product to the final consumer. In simple terms, the distributor is the “middle man” between the manufacturer and the retailer. 

Application for small business people

Small business people may find themselves in the position of distributor, or they may need to deal with one or many distributors in order to run their businesses efficiently.

The distributor should be very well acquainted with the product and the manufacturers business before entering into a distribution agreement. The distributor needs to be aware of the target market, value and competition for the product. The distributor will generally also be interested in understanding the strength of the manufacturers business, whether it is well run and likely to continue to operate into the future.

Manufacturers should also ensure that they trust the distributor and are comfortable with the terms of the agreement. Ultimately, the distributor will be representing the manufacturer’s product and brand in the marketplace so having a distributor who is trustworthy, reliable and with strong sales abilities can make a big difference for the success of the manufacturers business.

6 key things to consider

As with all other legal agreements, there are several important issues that you must consider before entering into a distribution agreement. These include:

  1. Whether it is exclusive? Does the distributor have the sole rights to distribute the product, or will there be other distributors?
  2. If there are other distributors, will there be any geographical or other limitations to reduce competition?
  3. What is the dispute resolution process for any conflict arising from the agreement?
  4. What are the manufacturer’s responsibilities in terms of the quality, quantity and delivery of the products? Will there be a warranty?
  5. What are the payment terms?
  6. What is the term of the agreement and what happens when the term expires?

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Small business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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