Key Elements of Distribution Agreements
Distribution Agreements: A Helpful Guide
Distribution agreements are legal contracts between an entity that supplies good and an entity that distributes them. The goal of the agreement is to protect both parties by making their rights and responsibilities clear. Below are 7 key elements to include in any distribution agreement.
The Purpose of the Distribution Agreement
Not every distribution agreement is entered into with the same goal in mind. You might hire a distributor for their level of expertise or because you need access to their customer lists. Both of these are different from what you might think of as standard reasons for entering into a distribution agreement. Make certain all purposes of the agreement are laid out in clear language.
The Start and End Dates of the Agreement
This can also be phrased as the term of the contract. All agreements must have a start date, noting at which point the parties will be held to the terms within. Having a set end date is not required, but might be important depending on the nature of your agreement. Something you might want to consider is a specific date each year on which the agreement can be renewed, altered, or ended.
If It Is an Exclusive Appointment
When there is an exclusive appointment, the distributor has proprietary rights to distribute the product. This can be worldwide or within a specific region. This may be preferred if there are concerns about competition within the distribution network.
Standards and Performance Metrics
There is a need for the distributor to rise to certain standards and maintain a level of performance. However, vague language leaves a lot of wiggle room in terms of what this means. As a result, you need to clearly outline the standards a distributor will be held to, as well as the metrics that will be used to assess their performance.
Responsibility for Marketing and Promotion
Marketing and promotion are critical to success, and thus, you need to make it clear who is responsible for handling these tasks. It could be one or both parties to the contract. If you choose to have both parties responsible for marketing and promotion, make the division of labor clear and establish the guidelines you want to see followed. Carefully outline your branding strategy to ensure it is adhered to.
Depending on your goals, you might want to include a clause that prevents the distributor from purchasing or distributing similar products for other clients. This restriction can be applied strictly during the term of the agreement, or it could extend for a specific amount of time after the agreement is dissolved.
When distributing products, at some point, the legal ownership and risk have to pass from one party to the other. Your agreement needs to specify at which point this will occur. The point at which risk is passed on determines who can be sued should something go wrong as well as when each party’s insurance needs to take over.
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