What Is a Distribution Agreement?
A distribution agreement is a contract between a supplier (or manufacturer) and a distributor.
You use this type of contract when you want someone else to buy your products and then sell them on to their own customers.
If you’re a supplier, you make your goods available, and the distributor takes responsibility for marketing and selling them in a specific territory or to a certain customer group.
Sometimes, you might grant exclusive rights to one distributor in a region. In this case, you’ll have an exclusive distributor agreement.
Other times, several distributors might work alongside each other (non-exclusive arrangements).
Key features you’ll often see in a distributor agreement include:
- The specific products covered by the contract
- The territory or groups where the distributor can operate
- How orders, deliveries, and payments will work
- Conditions for ending the agreement
- Any exclusivity arrangements
For example, if you manufacture kitchen appliances, you might sign a distribution agreement with a company that sells to retailers across the UK.
That distributor buys your appliances, then resells them to shops, handling all the marketing and logistics.
Distribution agreements are a popular choice when you want to grow your reach but avoid building your own sales network.
They also form part of practical law in many commercial industries, helping to set clear terms and protect both parties.
When Is a Distribution Agreement Needed?
You’ll need a distributorship agreement if you want someone else to sell your products in a specific area or market.
This often arises when you’re expanding into new regions and need a local distributor with the right contacts or expertise.
If you manufacture goods but don’t have the capacity to reach every customer group yourself, using a distributor helps you get your products out there efficiently.
In the UK, businesses often use these agreements to ensure everyone is aware of who can sell what, where, and under what terms.
Common situations where a distribution agreement is needed:
- Entering international or new domestic markets:
If you're taking your brand abroad or to a part of the UK you don’t operate in, you’ll likely need an agreement. - Protecting territories or customer groups:
You want to avoid two distributors competing for the same buyers. - Managing risks and clarifying responsibilities:
When things like delivery, pricing, and marketing need to be clearly divided.
If you want clear rules and to avoid disputes when someone else is selling your products, you’ll usually need a distribution agreement.
This is especially true in regulated sectors or when valuable relationships and territories are involved.
How to Write a Distribution Agreement
Distribution agreements are essential if you want to clearly set out rules and avoid disputes when someone else is selling your products. You can follow these steps to create a clear and comprehensive contract.
Step 1: Identify the Parties and the Agreement Date
Begin the agreement by clearly stating the names of the parties involved.
Typically, this includes the manufacturer or supplier (referred to as “the Company” or “Supplier”) and the entity that will distribute the products (referred to as “the Distributor”).
Include each party’s legal name, address, and any relevant company identifiers such as registration or VAT numbers.
Also include the date on which the agreement is being entered into. This marks the official commencement of the legal relationship.
Step 2: Define the Products and Territory
Once the parties are identified, describe the specific products that are being distributed. Provide detailed names, model numbers, or descriptions to avoid ambiguity.
Next, outline the geographic territory in which the distributor is authorised to operate. This could be as broad as a continent or as narrow as a single city, depending on the business arrangement.
This section sets the limits of what the distributor is allowed to sell and where they are allowed to sell it.
Step 3: Specify the Grant of Distribution Rights
Clarify what kind of distribution rights are being granted.
Indicate whether the distributor has exclusive rights, non-exclusive rights, or sole rights within the defined territory.
Explain whether the distributor can appoint sub-distributors or agents, and under what conditions.
If there are restrictions, such as minimum sales targets or limitations on competing products, these should be outlined in this section as well.
This helps avoid disputes over rights and expectations between the parties.
Step 4: Set Out Ordering, Delivery, and Pricing Terms
Next, describe how orders will be placed, processed, and fulfilled.
Outline the procedures for submitting purchase orders, timeframes for confirmation, and how shipments will be handled. Include delivery timelines, shipping methods, and who bears the cost and risk during transit.
Then, explain the pricing structure. Detail the wholesale prices, any discounts, and how future price changes will be communicated.
State the currency of transaction and the payment terms, such as due dates, late payment penalties, and invoicing practices.
Step 5: Define the Term and Termination Conditions
Specify the duration of the agreement. This can be for a fixed term (e.g., one year) or continue until terminated by either party.
Then describe the conditions under which either party may terminate the agreement. This could include breach of contract, insolvency, failure to meet sales targets, or mutual consent.
Be sure to state the required notice period and the method of delivering such notice, whether by email, post, or in person.
Also include post-termination responsibilities, such as returning unsold inventory or outstanding payments.
Step 6: Outline the Responsibilities of Each Party
Clarify what each party is expected to do under the agreement.
For the supplier, this usually includes providing products, marketing materials, and after-sales support.
For the distributor, it typically involves promoting the products, maintaining inventory, and providing customer service.
Mention any specific obligations, such as training sessions, performance reports, or promotional activities.
This ensures that both parties are on the same page about their roles in the business relationship.
Step 7: Address Intellectual Property and Branding
Explain how the distributor may use the supplier’s brand name, trademarks, and other intellectual property.
Specify whether prior approval is required for marketing materials, and what happens to these rights when the agreement ends.
Include terms that protect the supplier’s intellectual property from misuse or unauthorised reproduction.
This section protects the brand’s integrity and sets legal boundaries for its use.
Step 8: Include Confidentiality and Non-Compete Clauses
If the parties will be sharing sensitive business information, include a confidentiality clause.
State that both parties agree not to disclose proprietary information to third parties and to use such information only for the purposes outlined in the agreement.
You can also include a non-compete clause to prevent the distributor from dealing in competing products during or after the term of the agreement, subject to legal limitations.
These provisions help preserve business interests and strategic advantages.
Step 9: Add Legal and Dispute Resolution Clauses
Include standard legal terms that govern the interpretation and enforcement of the agreement.
Specify the governing law and jurisdiction in case of disputes. This is particularly important in international agreements.
Outline how disputes will be handled, whether through negotiation, mediation, arbitration, or litigation.
You may also include clauses on force majeure, assignment of rights, and entire agreement provisions to ensure legal clarity and completeness.
Step 10: Review and Execute the Agreement
Carefully review the entire agreement to ensure that it accurately reflects the terms discussed and is free of inconsistencies or unclear language.
Make sure both parties fully understand their obligations and rights.
It’s advisable to have a legal professional review the agreement before it is signed, especially if the value or complexity of the deal is high.
Once finalised, each party should sign and date the agreement, with printed names and official titles if applicable.
Both parties should retain a signed copy for their records.
Only upon execution does the agreement become legally binding, so accuracy and clarity are essential.
It may be helpful to use a distribution agreement template to help you draw up your agreement.
