Distribution agreements form one of the most commonly used marketing arrangements for businesses looking to trade without having a retail or customer facing presence in a particular market or country.
A distributor buys from a manufacturer and sells as independent principal, applying a mark-up to the manufacturer’s sale price and re-selling to customers. For this reason a distributor is referred to as a re-seller in some jurisdictions. Compared to an agency, the distributor takes ownership of the products and contracts are directly between the distributor and the end customer.
Therefore a distributor assumes the legal and commercial risk whereas an agent (normally) does not.
Distribution agreements are extremely useful arrangements when making the move to trading abroad as they can provide effective initial routes to market overseas.
When entering into a proposed distribution arrangement it is imperative that you take legal advice to ensure you are entering a genuine arrangement of your choice. Courts will not look at the title of an agreement when deciding whether an agreement is that of a genuine distribution relationship and such omissions may prove costly.
Some key considerations in respect of distribution arrangements are:
- product sales risk lies with the distributor, not the business whose products are for sale. It is the role of the distributor to try and boost sales;
- the risk of expanding into new products or territories is easier under a distribution agreement as the distributor may have an established customer base already aboard;
- it is possible to use the distributor’s name and/or experience of the market as a positive factor in selling, rather than starting from scratch in a new market;
- using a distributor may avoid a taxable presence or permanent establishment in the distributor’s jurisdiction;
- commission payments due under an agency agreement are not due on termination of a distribution arrangement; and
- competition law will apply to a distribution arrangement and therefore certain clauses are discouraged if permitted at all.
This is by no means an exhaustive list. Our team will guide you through the process of appointing or becoming distributor and ensure you are well protected from any breakdown in the contractual relationship. We can also assist when things go wrong on advising in respect of competition issues and compensation issues, as well as successfully exiting an arrangement.
Our expertise in Distribution Agreements:
Here is a small selection of the types of clients we have acted for and the work we have done in this area:
- We advised a manufacturer of catering equipment on the setting up of a UK-wide network of distributors.
- We advised an e-commerce retailer on entering into a selective distribution agreement with a manufacturer of high-end electronics products.
Should you have any queries regarding a distribution arrangement, please get in contact with Robert Capper, head of the Commercial Department, for an initial and no obligation discussion either by phone on +44 (0) 1905 744814 / +44 (0) 7909 970323 or by e-mail at email@example.com. Our Commercial team are available for appointments in all of our offices, located in Worcester, Cheltenham, Thames Valley, Birmingham, Hereford and Ross. We also have a serviced office in London.