Distributor Agreements

Leezer Kaur
Apr 16, 2023
3 min read

“Written by Leezer Kaur, Student

Distributor

This term is used to refer to a person responsible for supplying goods or services directly to consumers or to the retailers who further provide them to the consumers.

Agreement

This term is defined under Section 2(e) of the Indian Contract Act, 1872, as a promise for some valid consideration.

Distributor Agreement

It is also called a distribution agreement and is legally binding if by the statutory law and the law of the land. In this, the supplier sells his goods or services to one or more distributors who in turn sell them to the consumers who demand them. It is mainly limited to a particular area and not beyond that. It is a very beneficial way for the producer to sell his goods and services in a wide geographical area via distributors. A supplier can even get different distributor agreements made with distributors in different geographical areas to widen the scope of his business.

Types

Exclusive distribution agreements: This type of agreement provides the distributor with the exclusive rights to distribute the supplier’s goods and services.
Non-exclusive distribution agreements: The seller can also enter into many distribution agreements with different distributors.
Wholesale distribution agreement: In this, a wholesaler buys a large number of goods and services from the supplier at a lower price and then sells it to the purchaser, some other person, or even a company for further sale to earn profits.
Distribution agreement for commission: Such agreements specify the amount to be paid to the distributor for selling the product and also specify the amount of commission to be given to the distributor depending upon the no. of goods sold.
Developer distribution agreements: It is mainly used by software and application developers in which they specify as to how and for what purpose they want their product or service to be used.

Need

It prevents any kind of misunderstanding or misinterpretation which may occur as a result of verbal or informal agreements.
It provides an opportunity for the victim to claim legal protection in case of breach of any of the stipulations of the agreement.
It also specifies the duties and obligations of the supplier and the distributor.
It helps in the promotion of one’s business and products, and services and helps start-ups to rise worldwide.

Particulars To Be Provided In The Agreement

It must specify the extent of geographical location over which the distributor is permitted to sell and advertise the products and services.
It must specify the rights and liabilities of the supplier and the distributor, like dates and timing of delivery of goods and services; payment for the products; the maximum price that can be charged to the consumers, and other particulars like customer service, accountability, etc.
It should also specify the period for which the agreement should remain enforceable.
It should also specify the circumstances under which the agreement can be terminated by both parties.
It must also specify the supplier wants to limit the distributor's ability to reveal trade secrets or the preservation of some confidential information.
Sometimes, both the producer and the distributor are in charge of marketing the product, so in such cases; the agreement should lay demarcation between the duties and obligations regarding the marketing of the product among them.
If the supplier wants to prohibit the distributor from selling identical products or products of his rivals in the market, then he may also make it a stipulation under his agreement.

Advantages

In a distribution agreement, the supplier's risk passes to the distributor and proves to be beneficial for the supplier. The supplier would have to manage the bills and accounts only with the distributor. Also, the distributor earns profits just by acting as an intermediate between the producer and the consumers.

Conclusion

These types of agreements are sometimes termed ‘distribution agreements’. These are entered into by the producer of particular goods and services with one or more than one distributor to sell his products to the consumers. It is enforceable in a court of law if it is by the legal provisions of the country.