Distribution Agreement

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Introduction

A business wishing to market a product in a vast territory can use various methods. The use of one or more national or regional distributors is one of the methods to be considered for the distribution of a product on a target market, as it allows the manufacturer to obtain, rapidly and at a lower initial cost, goodwill, physical infrastructures and financing from the distributor who acts as a buyer and reseller of the product itself. This approach releases the manufacturer from the responsibility of marketing its product while allowing a wider distribution and generating revenue to finance the production of the product. The development of a good product is not sufficient to ensure the commercial success of a business. It is only the first step. The second step, which is as important as the first, is the marketing of the product.

This document establishes the main components of the legal and financial framework of such an operation.

Description

The Distribution Agreement is the legal instrument by which a business, called the MANUFACTURER, sells its products, brand, on an exclusive or non-exclusive basis, to another company called the DISTRIBUTOR. The latter sells to its own customers through its network of sales and distribution.

Use

This agreement is used to establish various marketing circuits for a manufacturer. We recommend using it when a manufacturer seeks to ensure greater geographical distribution of its products, and requires large movements of goods to a variety of outlets. The use of a distributor allows a manufacturer to achieve faster market penetration on the markets served by the distributor and to benefit from the latter’s storage and distribution facilities. If sales will be made internationally, we also recommend consulting document K07.250 of the Business Precedents, titled International Sale of Goods Agreement. If the products can be distributed without requiring significant shipping to multiple outlets, it may be more advantageous for the manufacturer to use the services of a manufacturer's agent (see document K01.200 of the Business Precedents) and perform its own physical distribution, i.e. the delivery of its products, instead of entering into a distribution agreement.

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