Texas Distribution Agreements

Distribution Agreements in Texas

When a company creates a product for sale, that company must determine the best way to distribute that product. Some companies choose to sell products themselves, but many companies work with people outside of the company to sell the product. Known as distributors, these companies work independently, sometimes buying products to sell with a markup for resale and sometimes processing orders, usually earning commission on completed orders.

Advantages of a Distributorship

Suppliers benefit by having increased options for selling their products. Suppliers focus mainly on production, so they often have a strong interest in establishing a good relationship with a distributor who can help their product reach a wider variety of resellers and end users. The distributors benefit by focusing mainly on sales. Since their main goal is the distribution of the product, they don’t have to invest time or money researching and developing a product to sell.

The Purpose of Distribution Agreements

As important and helpful as the manufacturer/distributor relationship may be for both parties, defining the parameters and expectations of that relationship ensures that everyone is on the same page, fostering a good working relationship. A distribution agreement does just that; it is an agreement between the manufacture and the distributor which details their agreement to buy and sell products from the manufacturer. It also generally defines the geographical areas of those sales and explains whether the agreement is exclusive or non-exclusive. If an agreement is exclusive, the producer sells their product to only one distributor for a given territory. A non-exclusive agreement means that manufacturers issue their products to a number of distributors, allowing the distributors to compete with one another for distribution of the product.

Key Components of Distribution Agreements

The distribution agreement defines the terms of this working relationship and is signed by both parties, as reflected in the following sample language:

A. Distributor desires to purchase certain Products (as hereinafter defined) from Vendor from time to time and Vendor desires to sell certain Products to Distributor in accordance with the terms and conditions set forth in this Agreement.

B. Vendor desires to appoint Distributor as its non-exclusive distributor to market the Products within the Territory (as hereinafter defined) and Distributor desires to accept such appointment on the terms and conditions set forth in this Agreement.

Other important clauses of the contract are

  1. An appointment clause, in which the producer and distributor define their working relationship as exclusive or non-exclusive.
  2. A pricing clause, in which the prices, charges, discounts, and/or quantities are set. All parties should be informed of any discounts or promotional pricing. These discounts should be consistently available to both parties and should not harm the profits of either. This clause also confirms the legality of the product and its distribution.
  3. An intellectual property rights clause, in which the parties establish intellectual property rights for the product, confirming the product does not infringe on a third party’s intellectual property rights. This clause also establishes the manufacturer’s responsibility for addressing issues with intellectual property rights, including the return of the product and the refund of the distributor’s payments if issues with intellectual property rights are not resolved in a timely manner.

While producer/distributor relationships are mutually beneficial, defining the parameters of this working relationship is crucial. On-line templates for distribution agreements are easily available, but a standardized form does not often fit the unique needs of the parties involved in the agreement. An experienced business attorney can offer insight and expertise to help define a positive working relationship which benefits everyone involved.

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