An Exclusive Distribution Agreement is a legal document that outlines the specific terms and conditions between two or more business entities whereby one business agrees to exclusively distribute the products or services of the other business. This type of agreement can have a variety of benefits for both parties, including exclusive access to new markets, increased revenue, and strengthened relationships. Let’s take a closer look at what an Exclusive Distribution Agreement Template includes and some things you should avoid when creating one.
What Is an Exclusive Distribution Agreement?
An exclusive distribution agreement is a contract between a manufacturer and distributor that gives the distributor the sole right to sell the manufacturer’s products within a certain territory. The agreement sets forth the terms and conditions under which the manufacturer will provide its products to the distributor, including pricing, minimum purchase requirements, and exclusive rights.
What Are the Benefits?
There are several benefits to having an exclusive distributor agreement, such as:
- It clearly sets out the terms of the relationship between you and the distributor, including what products or services are being distributed, for how long, and in what territory.
- It can help you build a strong relationship with the distributor by outlining both parties’ obligations and expectations.
- It can protect your intellectual property rights by specifying that the distributor will not distribute any competing products.
- It can ensure that the distributor promotes your products or services in accordance with your marketing strategy.
Having an exclusive distribution agreement in place can provide clarity and peace of mind for both you and the distributor. It is important to make sure that the agreement is clear and concise, and that it covers all of the bases.
What Should an Agreement Include?
An exclusive distribution agreement should include the following:
- The term of the agreement
- The territory or geographic area covered by the agreement
- A description of the products or services that are being distributed
- The distributor’s obligations, including any minimum purchase requirements
- Your obligations, including any restrictions on how you can sell the products or services
- The exclusivity provisions, including what happens if the distributor breaches the agreement
- Any other important terms and conditions, such as confidentiality provisions or dispute resolution procedures.
Why would a business want to enter into an exclusive distribution agreement?
There are a number of reasons why a business might want to enter into an exclusive distribution agreement. For example:
- Provide the distributor with the incentive to invest time and resources in promoting and selling your products or services
- Give the distributor certainty that it will be the only supplier of your products or services in the territory
- Help you to control how your products or services are distributed in the marketplace
- Allow you to appoint different distributors in different regions or for different channels (e.g. retail, online)
Of course, there are also some potential drawbacks to entering into an exclusive arrangement. For example:
- Lose the ability to distribute your products or services yourself in the territory
- Be reliant on the distributor for promoting and selling your products or services
- Have less control over how your products or services are distributed in the marketplace
- Find it difficult to terminate the agreement if the relationship is not working out
Before entering into an exclusive distribution agreement, you should carefully consider the pros and cons to decide if it is the right move for your business. If you do decide to go ahead, be sure to include all the essential elements in your contract so that both parties are clear on their rights and obligations.
What Are Some Things to Avoid?
Here are a few things to avoid when drafting an exclusive distribution agreement:
- Don’t make the agreement too restrictive. You want to give your distributor some flexibility to sell your products or services in the marketplace, but you also want to protect your interests.
- Avoid giving your distributor exclusive rights to sell in certain geographic areas. This could limit your ability to sell in those areas in the future.
- Make sure that you have the right to terminate the agreement if your distributor is not meeting its obligations. You don’t want to be locked into an agreement with a distributor who isn’t doing a good job of selling your products or services.
- Be clear about what is included in the agreement. You don’t want there to be any ambiguity about what is covered by the agreement.
- Make sure that you understand the tax implications of the agreement. You don’t want to get stuck with a bill for taxes that you weren’t expecting.
Sample
This Exclusive Distribution Agreement ("Agreement") is made and entered into as of the date of ______________________________ (the "Effective Date") by and between ______________________________, a corporation organized and existing under the laws of the State of ______________________________ with its principal place of business located at ______________________________ (the "Company"), and ______________________________, an individual with a mailing address of ______________________________ (the "Distributor").
Company and Distributor hereby agree as follows:
The term of this Agreement shall begin on the Effective Date and continue in full force and effect for a period of two (x) years thereafter (the "Term"). At the end of the Term, the Agreement shall automatically renew for successive one (x) year terms unless either party gives written notice of its intention not to renew at least ninety (90) days prior to the expiration of the then-current term.
The Distributor shall have the sole and exclusive right and authority to market, sell and distribute the Products in the Territory. The Distributor shall use its best efforts to promote and sell the Products in the Territory.
The Distributor shall not, without the prior written consent of Company, do any of the following: (i) authorize any person or entity other than an authorized reseller to resell the Products; (ii) market, sell or distribute any products that are similar to or compete with the Products; or (iii) use any of Company’s trademarks, trade names, or other intellectual property in a way that would reasonably cause confusion as to the source of the Products.