Distributor vs. Sales Representative. Distributors usually will purchase the company’s products at a discount for resale, while independent sale representatives will work on a commission basis but not carry any inventory.
Distributor Agreement Checklist:
1. Identify the legal Identity of each party to the Distributor Agreement. It is very important that legal names of each entity and/or individual and the State or Country where the entity is registered be accurately identified, as well, as the full each party’s address). include recitals that sufficiently describe the background for the relationship and the duties and obligations of the parties.
2. Appointment of Distributor for Distributor Agreement (or Seller, Reseller or broker)
a. Specify whether Distributor Agreement is an exclusive or non-exclusive distributor agreement;
b. Set forth territory;
c. Specify if there is a right to bind supplier; and
d. Permit or prohibit assignments of the contract and/or appointment of sub-distributors.
3. Term and Termination of the Distributor Agreement (i.e. does the agreement set forth termination procedures, state what events will trigger termination, auto renew, special circumstance provisions, and rights of parties upon termination, etc.)
4. Define key terms such as Confidential Information, Intellectual Property Rights, Return-Credit, Products or Services and reservation of rights, right of first refusal, etc.
5. Clearly identify distributor rights, territory, resale rights, pricing, licences, advertising duties, promotional duties under the Distributor Agreement.
6. Terms of Payment (i.e. U.S. dollars ) for the Distributor Agreement.
7. Performance requirements (sales targets, remedial measures, etc.) for the Distributor Agreement.
8. Procedures related to Ordering and Shipping (risk allocation, etc.) for the Distributor Agreement.
9. Manufacturer & Distributor Responsibilities (for marketing, marketing rights, returns and credit, inventory, allocation of manufacturer’s limited inventory, discontinued products, cooperation with new manufacturer product releases, warranties and indemnification, drop shipping procedures, incorrect shipments, shipment and delivery terms, distributor training, etc.) for the Distributor Agreement.
10. Government filings or approvals (allocation of responsibility,etc.) under the Distributor Agreement.
11. Warranty (minimum warranty required by law, defective product procedure, etc.) applicable to products sold under the Distributor Agreement.
12. Intellectual Property Rights (trademarks, service marks, trade secrets, copyrights and scope of license for use, etc.) granted via the Distributor Agreement.
14. Confidentiality & Non-Circumvention provisions for Distributor Agreement.
15. Is Assignment of Distributor Agreement is allowed and under what circumstances.
16. Export Information (if applicable)
17. Dispute Resolution process for disputes arising under Distributor Agreement.
18. Non-compete/Non-solicitation (employee anti-raid) provisions required by either party to the Distributor Agreement.
19. Attorney’s Fee clause for the substantial prevailing party, is one warranted?
20. Authority of executing party (does the person signing he Distributor Agreement have the authority to bind the entity party?)
21. Identify which State or Country law controls
22. International Agreement? It is important to review the terms of the contract, particularly the exclusivity provisions, and termination provisions. For instance, termination provisions in foreign sales agency and distribution agreements are particularly sensitive since many foreign countries have imposed significant restrictions on the ability of a “foreign” manufacturer (i.e., a United States company) to terminate a “local” sales agent without compensation or penalty.