Do I need an agreement with my distributors?

When you engage a distributor or a reseller, they will buy the products (could be either goods or services) from you then independently sell them with a mark-up to customers.

Distribution shares some similarities with agency but it has a different legal structure to agency and thus is not governed by the Commercial Agency Regulations. However without a clear agreement, sometimes the similarities between these two channels to market may cause confusion and the courts will look at the facts to establish the substance of the arrangements.

As this is normally a long-term arrangement, having an agreement in place will help to establish the mechanism for you to deal with operational, contractual and legal matters. For example, you may want to specify:

  • Whether the arrangement is sole (you retain the right to sell into the distributor’s territory but you will not appoint any other distributors), exclusive (only the distributor has the right to sell in the territory, excluding you and any other third party) or non-exclusive.
  • The ordering process including pricing (including price increase), stock levels etc.
  • Any sales targets or KPIs.
  • How promotion and marketing is delivered and the level of control or support that you may have in marketing activities.
  • Any information that the distributor must report to you periodically.
  • The process to handle customer feedback, complaints or product issues.

As distribution may involve cross-border trades, you should consider competition law issues when entering into a distribution arrangement. The contract should not include terms that could adversely impact competition in the relevant territory (e.g. price fixing, territorial restrictions or customer restrictions).