Distribution agreement: who sells what, where, and on whose terms

A distribution agreement is the contract under which someone else buys your product and resells it, usually in a defined territory. It is not an agency arrangement — a distributor takes title, carries the stock and takes the margin, where an agent sells on your behalf for commission and never owns the goods. Getting that distinction wrong at the outset changes who bears the credit risk, who owes what tax, and in several jurisdictions whether the other party is entitled to compensation when you terminate.

What a distribution agreement has to settle

• Territory, defined precisely — a country, a region, a channel — and whether it covers online sales, which is where modern disputes concentrate.
• Exclusivity: exclusive, sole or non-exclusive. Exclusive means you cannot sell there at all; sole means you can but no other distributor may; non-exclusive means neither restriction. The three are routinely used as synonyms and are not.
• Minimum purchase targets, with the consequence of missing them stated — loss of exclusivity is the usual answer, and it is far more useful than termination.
• Pricing: what you charge the distributor, and what you may and may not say about resale prices, since dictating them is unlawful in most competition regimes.
• Intellectual property: a licence to use your marks for resale, limited in scope and ending when the agreement does.
• Term and termination, including notice, and what happens to stock the distributor still holds.
• Governing law and dispute forum, which matters more than usual because the parties are in different countries by definition.

The clauses that cause the disputes

1. Online sales left unaddressed, so the distributor’s webshop reaches customers in another distributor’s territory and both complain.
2. Termination compensation: some jurisdictions grant distributors an indemnity on termination regardless of what the contract says, and the amount can be substantial.
3. Stock on termination — whether you must buy it back, at what price, and what happens if you do not.
4. Customer data ownership, which decides whether you can sell directly to those customers after the relationship ends.
5. Delivery terms and risk transfer, which should reference incoterms rather than being described in prose.
6. Resale price maintenance, where a well-intentioned clause about brand positioning becomes a competition law problem.

Exclusivity is the most expensive word in the agreement and the one most casually granted. Once given for a territory, you cannot sell there yourself, and you cannot appoint anyone else, for the whole term — however badly the distributor performs. Tie exclusivity to performance targets from the first draft, so underperformance costs them the exclusivity rather than costing you a termination fight.

Running it after signature

• Track the targets monthly rather than discovering at year end that the trigger was missed.
• Keep the executed version and every variation together, since long distribution relationships accumulate side letters that nobody has read as a set.
• Diarise the notice date. Automatic renewal with a long notice period is how a underperforming arrangement extends by another two years.
• Record what marketing support and pricing you actually gave, because an equal-treatment complaint from another distributor is answered with evidence.
• Where volumes justify it, the relationship eventually looks like a master service agreement with orders underneath rather than a single long contract.

Where the agreement lives

Ettex Signature handles execution and keeps the signed version with its date and signatories, which matters here because distribution relationships outlive the people who negotiated them. Keep the targets, the notice date and the variations as fields on the same record rather than as knowledge held by one salesperson. Ettex does not draft agreements and this is not legal advice — exclusivity, termination compensation and resale pricing all carry real legal exposure that differs sharply by country, and a distribution agreement is worth a lawyer in each territory that matters.