If the manufacturer starts selling to the end customers, it is laborious to gain knowledge of local markets and the capacity to achieve market penetration everywhere. So, they prefer appointing distributors for this work instead of direct distribution.
When it comes to selling a product, a distributor is a crucial link in the chain. With distributorship, manufacturers are able to reach different customers in different geographical areas.
come with an agreement of different rules and regulations which are formed in distributor agreement.
What Is a Distributor Agreement?
This is a legally binding agreement taking place of communication, assurances, representations, or agreement between two or more parties either written or oral. The distributor wishes to purchase the products from the company manufacturing and selling the goods.
These products are for resale in predetermined geographic areas or territories. Such agreements are applicable when a company wants to select a distributor as its exclusive distributor of the products in the territory.
On the other hand, the distributor wants such appointments as per the terms and conditions agreed in this Agreement. Therefore, the parties herein involved in this legal bond to gain mutual benefit. This distribution agreement works in the following way.
How Does a Distributor Agreement Work?
The manufacturer provides exclusive rights to the distributor under legal obligations. Some distributors can exclusively sell and distribute the products in the mutually agreed region or area.
Moreover, the company shall not sell or contact directly to any of the distributor's customers without any prior written approval.
The distributor is the sole responsible person for any of its appointed sub-agents, sub-representatives, sub-distributors, or other contact carrying any activity on behalf of the distributor.
The company is liable to accept or reject the orders placed by the distributor in a stipulated time period. If no such communication is communicated by the company, the order will be deemed as accepted.
The schedule also conveys the price and bulk discounted prices at which the company will sell the product to the distributor. Any change in the cost should be in written notice after the given effective date of the increase.
Any freight and shipping costs related to the goods sold will be the distributor’s responsibility. He can also inspect the quality and quality of the distributor’s facility.
In case of any shortages, defects, or non-conformance, the distributor will notify the company which will replace the goods free of charge. You can find sample distributor agreements for a better understanding of price and shipment terms.
Who Needs a Distributor Agreement?
The distributor is an independent contractor and not indicated as a dealer, joint venturer, affiliate, employee, general agent, or partner of any company.
The agreement binds the distributor in acknowledging that the company has not granted any permission to make changes to the company's terms and condition of sales.
The distributor will not commit any warranty policy to the customers apart from the ones provided by the company incur obligations, sign quotations, or enter into agreements on company’s behalf for the product with government agents, customers or any third party.
Neither supplier or distributor holds any right to enter a legal commitment or agreement on behalf of the other in any condition whatsoever, except it is allowed by the agreement.
The distributor is liable to advise or inform suppliers if he has any knowledge of infringement of patents, copyrights, trademarks, or other intellectual property right on any goods used by the supplier.
What Are Included in a Distributor Agreement?
- Exclusivity of Distributor: Some distributors enjoy the exclusivity of geographical boundaries to avoid multiple competitors. In this exclusive agreement, the products of the manufacturer are allowed to be sold only by a particular distributor in the specified region/regions.
- Terms And Conditions Of Sale: The manufacturer sells its products to the distributor who further supplies it to the dealers or the end-users located in different regions.
- Pricing Policy: The decision of the pricing should be mutually decided and should be in norms with market regulation. They should mutually decide the maximum price which should be the maximum purchasing price for the authorized dealers or end-users.
- Time Period of the Agreement: The agreement must indicate the fixed years of granted distributorship. This can be renewed yearly or a predetermined number of months to protect the interest of both parties.
- Rights for Marketing: To increase revenue, distributors should be allowed to initiate marketing activities. However, this may include representing the manufacturer as a bona fide representative which needs to be mentioned in the exclusive distributor agreement template.
- License of Trademark: The distributors can only use those trademarks and other intellectual properties of the manufacturer which are predetermined in the agreement. This will help the distributors to be under the norms for operations like advertisements and other promotional activities.
- Geographical Territory: The distributor agreement should cover the geographical area within which he is allowed to sell the products of the manufacturer. After the decided area, the exclusive rights need to be highlighted in the agreement, if any.
- Performance: The volume of the sales should be decided in advance. However, if the distributor is not able to meet this proposed target, the manufacturer should be allowed to terminate the agreement.
- Termination Different circumstances or norms need to be agreed upon under which the parties are allowed to terminate the agreement. So, if one party is not satisfied with the performance of the other party, he should have the power to annul the agreement.
It is crucial to create a distribution agreement template for manufacturers and distributors to avoid getting into any chaos or fraud. The distributor and manufacturer should mutually conclude to a distribution strategy to enter into a particular type of agreement.
Every detail mentioned in the agreement should be verified twice by both the parties before signing it. Moreover, we understand the need for getting a reliable and trustworthy legal document.
Hence, CocoSign has a list of exclusive distribution agreement templates for different reasons to come into agreement. These templates are verified by lawyers. You can contact, for more details.
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