Whether you are (or are planning to be) a supplier, distributor or wholesaler of goods, it is important to ensure you understand what your rights, responsibilities and obligations are before any product distribution actually takes place.
Distribution Agreement Lawyers NSW
A Distribution Agreement (also referred to as a Distributorship Agreement or Distributors Agreement) is a legal contract that contains the terms of a business arrangement where one person distributes (and/or sells) goods that are supplied to them by a manufacturer, vendor or importer.
In some cases, a distribution agreement can involve multiple distributors and a single supplier.
We draft tailored distribution agreements that are based on our clients’ unique requirements.
Contact our Business Team to discuss your requirements and the costs involved in drafting your distribution agreement.
What terms are covered in a standard Distribution Agreement?
A distribution agreement may cover terms and conditions such as:
- Parties – Who are the parties involved in this relationship?
- Product – What goods are being supplied/distributed? Can these goods be changed/altered in any way?
- Quantity – How much product is being distributed?
- Territory – Where is the product being distributed?
- Period – How long can the product be distributed for? Is there a probationary period?
- Price – What price is the product being sold for?
- Targets – How much product needs to be distributed to achieve sales targets? If these targets are not met, what are the rights of both parties? Is there a minimum order?
- Payment – What (and how much) payment will be made for the distribution? When (and how frequently) will this payment need to be made?
- Exclusivity – Is the distributorship exclusive? What happens if this is breached? (Retailers often try to secure exclusive deals to distribute popular products)
- Termination – How can the distribution agreement be terminated?
- Marketing – How are the products to be marketed? (Apple has very strict terms and conditions when it comes to their products)
- Reporting – What are the reporting requirements of both parties?
- Licensing – Are there any trade mark licensing issues? Who owns the brand?
- Confidentiality – Are any aspects of the relationship to be kept confidential?
Is the document a distribution agreement or franchise agreement?
The Franchising Code has a very wide definition of what constitutes a Franchise Agreement. For example, if a “distribution agreement” contains a detailed marketing plan and gives the distributor the right to operate their business using the supplier’s trade mark, then the “distribution agreement” is actually a franchise agreement.
In this type of situation the agreement would need to comply with Franchising Code in order for it to be valid and enforceable.
This is why having an experienced business lawyer draft your document is crucial.
Is there a standard distribution agreement template I can use?
Yes. Do we recommend using one? No.
Standard distribution agreement “templates” can be found online via a quick search on Google. However, these basic templates are written with generic terms and conditions that are unclear, generalised and ambiguous. If you use one of these templates you run the risk of the the agreement being unenforceable.
What is the difference between Exclusive and Nonexclusive?
An ‘Exclusive Distribution Agreement’ is one that ensures there is only one distributor in a specified geographical area (territory).
If the distribution agreement is nonexclusive it means the supplier is free to have similar agreements in place with other distributors in the same area.
A distributor will often push for an ‘Exclusive Distribution Agreement’, with the supplier being hesitant to grant full exclusivity. We find that a good outcome for both parties is a ‘Nonexclusive Distribution Agreement’ that grants full exclusivity to the distributor provided that the supplier’s objectives are met. If the distributor meets those objectives, and continues to do so, the agreement is exclusive. If the distributor fails to meet the objectives, the supplier would be able to enter into agreements with other distributors in the same area.
Any other considerations when it comes to distribution agreements?
- We recommend seeking your own independent legal advice before entering into any agreement. Do not, under any circumstances, use the other party’s lawyer;
- We recommend staying involved and interested throughout the entire negotiation process because your industry knowledge will be crucial when it comes to understanding industry norms, for example, predicting an increase in sales during peak seasonal periods;
- As soon as possible, do your ‘home work’ and run a credit check on the other party;
- We recommend not rushing the drafting process. Every term and condition within the distribution should be properly considered and negotiated, don’t expect the document to be ;
- Start small by not taking on too much territory. Many distributor/supplier relationships fail because an overly optimistic distributor has taken on too much territory;
- If you are a manufacturer, ensure the agreement allows for fluctuating prices, as this will help you recover costs during periods of inflation; and
- Relationships are organic because they can grow or decay over time. The nature of your relationship will also evolve and change. This is why we recommend allowing distribution agreements to be amended throughout the year.
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