What To Include In A Distribution Agreement

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In the modern business world, more and more companies are participating in distribution agreements that transcend international borders. According to the World Bank, international trade accounted for nearly a third of U.S. gross domestic product (DPG) in 2017. A distribution contract is a legally binding contract in which the exchange of value involves the right […]

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In the modern business world, more and more companies are participating in distribution agreements that transcend international borders. According to the World Bank, international trade accounted for nearly a third of U.S. gross domestic product (DPG) in 2017. A distribution contract is a legally binding contract in which the exchange of value involves the right to resell goods for money. Each important section of the checklist raises questions that, when answered, define the type of distribution agreement. The first sections focus on the parties, products, territory, scope of the agreement and the duration of the contract. Identify each party and make sure that the agreement determines whether the distributor is responsible for the resale of certain products or the entire product line. Describe the distributor`s geographic area, indicate whether the distributor is exclusive or not, and indicate the duration of the contract, including information on whether it is subject to an extension. Are there any trade secrets that the manufacturer must disclose to the distributor? If so, what kind of provisions do you have to guarantee exactly that the distributor is dealing with these trade secrets? In a seminar we attended, a lawyer from a very large company told an interesting story. The company had always entered into oral distribution agreements on the basis of a handshake. It decided to write an agreement to commemorate the exact relationship with its distributors. The lawyer said the exercise was very bad.

Distributors (and even some people in the company) interpreted the company`s desire for a written agreement as a sign of mistrust; whereas, for many years, the parties have built their relationship on feelings of mutual trust. The company implicitly rejected the idea of a written agreement because it simply did not work for it. Note, however, that in this situation, the parties involved have already had a long history of oral collusion on the basis of a handshake. This is a different situation from a cleaner slate. The reporting requirement should also be defined in the agreement. What exactly does the manufacturer ask distributors and how many times do they have to be submitted? Does the distributor have to draw up and submit a written sales plan or will the manufacturer do so? Some state franchise laws say that if the distributor is responsible for developing the marketing plan, the franchise law does not apply – the theory is that the franchise law only applies if the manufacturer prepares the plan and requires the distributor or franchisee to follow it. Therefore, from the manufacturer`s point of view, it may be good, at least in these countries, for the distributor to take responsibility for developing a marketing plan. The Federal Insolvency Act allows a bankrupt company to confirm or deny current contracts. If a distributor goes bankrupt, the distribution agreement may be its main asset. Therefore, the distributor can confirm this contract.

If so, the manufacturer will not have the choice to go under the federal insolvency law, but with confirmation. However, we find that it is not as serious as it initially appears. While the manufacturer is required to continue to comply with the contract, there are also obligations for the distributor/liquidator.

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