What is a Distribution Agreement in the UK?

As a business owner who supplies a product to consumers, you may come across a ‘distribution agreement.’ A distribution agreement is an important type of contract between a distributor and a supplier. These are also a very effective method of protecting yourself if the other party fails to meet your agreement and expectations. 

You may consider entering into a distribution agreement as a supplier, especially if you are looking to cut costs from sales operations. There are four key types of distribution agreements, for example, exclusive and non-exclusive agreements, agreements for commission, and developer agreements. 

This article will touch on some of the key features of a distribution agreement, and it will also explain some of the differences between the most common types of agreements.

What is a Distribution Agreement?

In summary, a distribution agreement is a type of contract between a distributor and a supplier. Often, the supplier is also a manufacturer. The agreement between the two parties should outline key terms as part of your contract. This is important for running a successful business for a number of reasons. Firstly, it makes very clear what the expectations of each party are, which can help you manage your costs, distribution territories, and deadlines. Secondly, having a distribution agreement also means that a party will be legally liable if they breach the agreement.

How a Distribution Agreement Works

Importantly, a distribution agreement will involve the distributor paying for the cost of sales. The distributor is usually after the profits that they can make from selling reliable goods, and the supplier is looking to cut the costs involved with distributing the goods. This kind of agreement will typically include a number of key terms. Some examples include:

• the terms and conditions of the sale;
• the dates for which your agreement is effective;
• the terms of a potential severance;
• what happens if a customer returns goods;
• the names and addresses of both parties;
• details of intellectual property rights and marketing rights;
• details on the particular territory that the agreement is valid for. 

Different Types of Distribution Agreement

As mentioned, there are four key types of distribution agreements. These include:

• exclusive distribution agreements;
• non-exclusive distribution agreements;
• distribution agreement for commission; and
• developer distribution agreement.

1. Exclusive Distribution Agreements

An exclusive distribution agreement gives the distributor exclusive rights to distribute your goods. Therefore, this makes them an exclusive distributor.

The supplier, in this case, agrees to sell the contract goods only to the exclusive distributor within a particular territory. The supplier then agrees to not appoint any other distributors within that territory. Typically, this agreement may include terms such as: 

• minimum purchase requirements;
• defined territories; and
• dispute resolution clauses. 

This type of agreement can sometimes raise competition law concerns, so if you are planning to go ahead with this model, it is usually a good idea to seek professional legal advice first.

2. Non-Exclusive Distribution Agreements

A non-exclusive agreement allows the supplier to supply the goods to other distributors within the defined territory, and it also gives the supplier the right to sell their product directly to users. This is sometimes also called a simple ‘wholesaler agreement’.

3. Distribution Agreements for Commission

A distribution agreement for commission will involve the distributor getting a set commission fee for meeting sales goals. 

As a supplier, this is an excellent way of incentivising a distributor to sell your product. Because the distributor is rewarded for their efforts, this type of agreement is likely to boost growth and sales for your goods. 

The sales goals in this type of agreement will vary with the type of product that you are selling and the market that you are selling it to. It is a good idea to think carefully about the commission fee that the distributor will earn. Often, it is a good idea to try to incentivise the distributor as best as you can.

4. Developer Distribution Agreements

A developer distribution agreement applies specifically to the software market. Some examples of developer distribution agreements include:

• the Google Play Store;
• the Apple Store; and
• the Microsoft Store.

If you are dealing with a developer agreement, you will want to make sure that you are familiar with the precise terms and conditions of your agreement.

Key Takeaways

As a business that is looking to enter into a distribution agreement, it is important to know the different types. Exclusive and non-exclusive distribution agreements importantly define whether the distributor is the only person to whom you will provide your goods. This can raise competition law concerns, so it is a good idea to get professional legal advice if you are planning on having an exclusive distributor. 

A commission-based distribution agreement is also a good idea if you are looking to boost growth and sales. Finally, a developer distribution agreement might be a point to keep in mind if you are dealing with a software market.

If you have any questions about distribution agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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