ALL YOU NEED TO KNOW ABOUT DISTRIBUTION AGREEMENTS
A distribution agreement is basically a legal agreement which is made between a supplier and a distributor of products. This agreement contains the terms of the agreement and control the partnership between both the parties. There are two modes of entering into a distribution agreement. Such agreement can be made either orally (informal) or in writing (formal). However, formal agreement is more preferred. There are various types of distribution agreement. They are categorized based upon the nature of transaction. This article basically explains what distribution agreement means.
Introduction
The distribution agreement is also termed as “wholesale distribution agreement”. It basically
governs the distribution of items which are made by a producer or supplier and sold by a
distributor. By this agreement, the manufacturer allows the distributor to sell and market its
product as per certain conditions. On one hand, the supplier agrees to give delivery of product at
regular intervals during the tenure of agreement and on the other; the distributor agrees to accept
the same. The main objective behind this agreement is to promote and market the product of the
manufacturer in a specific area and it is the responsibility of the distributor to make this happen.
Mode of distribution agreements
One can enter into distribution agreement by two modes – formal and informal. Informal
agreement is made in verbal form. It is not much preferred because it may result in
misunderstanding which in turn cause disagreements and need for legal action.
A formal agreement clearly states the terms and conditions of the agreement. If one party fails to
abide by the agreed provisions, the agreement will protect the other party legally and also
provide legal remedies.
Types of distribution agreements
The type of transaction one is conducting decides the type of distribution agreement. It is
important to choose the correct agreement so that the rights of both the parties can be
safeguarded. There are mainly 5 types of distribution agreements. They are:
1. Exclusive distribution agreement
In this type of agreement, the manufacturer gave the distributor exclusivity rights to sell
certain products or services instead of non-exclusive rights. This agreement can be used
in different ways by both the parties. In some cases, a distributor is the sole distributor of
goods of the supplier in a particular area. Some exclusive agreements allow the
distributor to distribute the goods to certain clients and prevent any other distributor from
doing so. This type of agreements is mostly made when the product is either expensive or
unique and therefore, need a specialized understanding of the item and the market. 2
2. Non-exclusive distribution agreement
In such type of agreements, there can be more than one distributor. Further, it is not must
for the seller to offer exclusive rights to the distributor.
3. Wholesale distribution agreement
In such agreement, a contract is made between a wholesale corporation and a distributor
for distributing the products in bulk. While selling the items in bulk, the wholesale
company sells them at a much lower price than it would if it sold them individually.
4. Distribution agreements for commission
Under such agreements, there is a provision which states the specific amount paid to the
distributor for selling the product. It also states the commission of the distributor in
accordance with the number of goods sold. If the distributor sells more products than the
set goal, he will be provided with additional incentives. It means that the payment of
distributor is proportional to selling of products. These agreements provide an effective
method to promote growth and sales by rewarding distributors for their efforts.
5. Developer distribution agreements
These types of agreements are mostly made between the developer of an application or
software and the company that distributes them. The agreement specifies the manner in
which the software and application developers want their products to be distributed.
Further, they state the overall relationship of the distributor and the developer.
Conclusion
Based upon the above-mentioned information, one can successfully conclude that distribution
agreements are nothing but an agreement between producer and distributors to distribute the
manufactured product. Based upon the type of transaction, one can use different types of
distribution agreements.
WRITTEN BY- RUPAM
