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Distributor Agreements – Exclusive and Non Exclusive

A Distribution Agreement is a legal document that sets out the terms and conditions of the business relationship between a distributor (or person who markets, distributes or sells certain products of another) and the manufacturer or supplier of those products. They are recommended for use by distributors, sales professionals, manufacturers and sellers.

A well drafted agreement addresses the following

  • The products being distributed;
  • The price of the products being sold and other costs;
  • Rights and obligations of each party;
  • Advertising and promotion of the product;
  • Ownership of intellectual property such as logos, trademarks and confidential information;
  • Supply chains;
  • Territories;
  • The terms and length of the contract;
  • Indemnities;
  • Termination of Contract; and
  • Dispute resolution.

What is the difference between a Distribution Agreement and an Agency Agreement in Australia?

The main difference between the two is that an agency agreement confers specific rights on the agent to enter into legally binding arrangements with a third party customer on behalf of the principal.  The principal is legally bound by the actions of the agent, where the agent has acted within the scope of it’s authority as set out in the agency agreement.

A distribution agreement makes it clear as to the rights and responsibilities of all parties involved.

To make sure your distributors understand the exact terms of the agreement it is essential you have a well drafted legal agreement in place.

An agent often does not have possession of any goods – once a customer is found, the goods are supplied directly to the customer by the principal.

In contrast, a distributor orders product directly from the manufacturer and then has the right to on sell those goods.

What about trade secrets and confidential information?

You can provide protection in your agreement for your intellectual property, trademarks, logos, trade secrets and confidential information.  It should clearly state the terms and conditions relating to these issues.

Can I become an exclusive distributor?

Yes, if the manufacturer, or other party, agrees.

Some manufacturers have multiple distributors, some have regional or territorial distributors and others have sole distributors.  All of these can be granted exclusive or non-exclusive rights, depending on what you have agreed to.

Being aware of exactly what the agreement states is essential whenever you consider entering one.

How many distributors can I use?

If you are a manufacturer, the decision about the number of distributors you use is up to you.  However, if you plan to grant exclusive distributorships, non-exclusive distributorships or other set-ups, you’ll need to make sure your distributors are aware of their responsibilities.

You can run your business any way you wish, but ensuring each party knows what they can and can’t do is essential.

Using a distributor, or going into business as a distributor, is a common business practice that all too often is left to a conversation and a handshake.  Make sure you have a well drafted Distributors Agreement in place if you are serious about your business.

Distributors Agreement Template Download