This article sets out some useful points to consider when a business is contemplating appointing a distributor for its goods or services.
Having a written agreement in place is always a sensible way forward so as to provide clarity to the relationship and to also protect the position of both the supplier and distributor.
Points to consider must include, but not be limited to the following:
Parties – who are the parties to the agreement.
Appointment – exclusive/ non-exclusive.
Term – what will the term be and will there be an automatic option to renew?
Products – what is the product line up?
Improvements/additions to products or services- What will happen if you improve upon the products? Will products be added to this during the term?
Purchase price – will there be any discounts based on volumes sold?
Territory: define the territory/ geographical location.
Non-compete (during/ after term)
Relationship between parties – what will be the relationship between the parties? The parties should be regarded as being totally independent from one another.
Confidentiality – this must work both ways. Both parties should be obligated to keep what they learn about one anotherÂs business confidential.
DistributorÂs obligations – advertising, minimum purchases/ transaction value, orders, service to customers, attend product training, any permits and licenses required in respect of the territory, compliance with local laws and regulations, insurance, access to premises, accounting and reports, other.
SupplierÂs obligations – will any product literature be provided, advertising, free training seminars, sample products, sales leads in territory, sales support, quality control, returning any defective products, insurance, other.
License to use trademarks and copyright material: suitable provisions to allow use of one anotherÂs intellectual property rights.
Method of payment and currency – will all payments be in one currency?
Shipping and delivery – who will ship the products and deliver? Title and risk in the products must be considered. Will the parties agree to use the International Commercial Terms (Incoterms) 2000?
Product warranty (full/ limited) and disclaimers – What will be the terms of the warranty?
Other terms and conditions of sale – a review of the supplier and distributors terms should be undertaken so as to ensure that they do not conflict with one another.
Competing products – Will there be a restriction on the distributor to refrain from selling competing products from other suppliers?
Limitation of liability – what will each party accept liability for?
Termination – with or without notice, for what reason etc.
Post termination – what will happen to orders in the pipe line etc.
Compliance with laws and regulatory bodies – in selling the products and delivering.
Law applicable to the agreement: If the parties to the agreement are from overseas then you need to be clear on what law will apply to govern disputes.
Dispute resolution – mediation ought to be an option to help resolve disputes quickly and effectively.
For further information, please contact Izaz Ali on firstname.lastname@example.org