Defining a Distributor Contract Agreement
Distributor contract agreements are crucial tools in the international supply chain, establishing a legally binding framework for how distributors and their suppliers should interact. In essence, a distributor contract agreement is a form of commercial contract that sets out in detail the legal obligations of the respective parties. This means that, should the relationship between the parties break down, those hindered by the agreement have recourse to the law.
A well-structured distributor contract agreement will protect the interests of the supplier and the distributor. For distributors in particular, the agreement will protect their ability to sell goods at an agreed price, to an agreed size of territory, and under agreed terms of payment . For suppliers looking to expand into a new region, entering a distribution arrangement may be a far more effective means of achieving their aims than attempting to establish a self-operating branch or subsidiary.
The ability to protect each party from unscrupulous business practices in what can often be a cut-throat industry is one reason why companies agree to these legal arrangements. Within the context of franchising, for example, these contracts allow suppliers the ability to protect their brand identity by setting out rules with regards to, or regulating the use of, branding and marketing materials by distributors.
Key Components of a Distributor Contract
This is second only to the preamble as the most important section of the agreement. Here typically is where the reader can pick up the contract and, from its beginning, know with what he/she is dealing. That is, the entire scope and intention of the agreement is laid out.
Three key elements are found in this section: (1) parties to the agreement, (2) terms and conditions, and (3) pricing. Each of these will be reviewed in the following sections. There are a number of other issues also addressed in this section, but it is this section that typically is the first point of discussion between aggrieved parties or counsel, as to what the basic crux of the matter is, and where parties break down to a "standstill."
It is important to note again that in no way should it be considered that this is the least important part of the contract as far as scope is concerned. Give ideas and consideration to the importance of both the Scope of Agreement section and the Preamble/Recitals section. In tandem, they shape the entire basic and fundamental relationship of the parties.
Very few contracts are going to vary from this basic scheme, as far as the main and important topic headings which follow. Again, details in these sections may be given greater or lesser emphasis, but it is these main topics which will be discussed below.
Advantages of Using a Template
One of the main benefits of using a distributor contract agreement template is the time it saves. By downloading a template, you don’t have to spend hours or even days trying to draft an agreement from scratch. Instead, you can insert your own information in the relevant sections and have a seamless, legally binding agreement. A distributor contract agreement template also helps to ensure you are compliant with all relevant laws and treat all distributors fairly and equally. Templates help to uphold third-party and reseller compliance, providing a level playing field between all of your distributors. Having a template helps to build trust between you and your distributors, as they can see you treat every single distributor in the same manner. Creating a distributor contract agreement template helps you to be consistent in your business dealings, treating every distributor equally. This consistency makes it easier to keep track of agreements and hold each distributor accountable for their actions. It also makes it easier if a dispute or breach occurs, as you can easily refer back to the agreement to check for compliance and additional stipulations that you can use to support your claims. Having a distributor contract agreement template makes it quicker and easier to amend agreements moving forward. If, for example, you want to introduce new distributor incentives, you can quickly and easily include these in the template agreement without having to make significant changes to each individual agreement.
Steps to Modify a Contract Template
A company may wish to customize a distributor contract template to suit their needs. Some of the issues that they may need to consider include:
(a) Scope of work — the company needs to determine whether the distributor contract template contains all of the services that it is hiring the distributor to perform and, if not, to add those services into the distributor contract template. For example, if the distributor is to be gathering customer information, then the distributor contract template should specify any limitations on how that information is to be gathered;
(b) Term — if a term of less than one year is desired, or if the distributor would like to specify a process for renewing the agreement, the parties need to customize the distributor contract template to suit their needs;
(c) Compensation — the distributor contract template may need to be customized with respect to compensating the distributor for its work, whether by salary, commission or some combination.
(d) Confidentiality — if there are trade secrets and/or client information that an employer does not want a distributor to disclose to third parties, the distributor contract template should specify the protections required.
If a distributor is working for a company that may have certain compensation structures, such as recoupment of bonuses, the distributor contract template may need to be customized to fit into the employer’s corporate structure.
An employer should consult with an attorney if there are any questions about issues that should be included in a distributor contract.
Legal Aspects of Distributor Contracts
While it is always wise to consult an attorney when considering how to approach a distributor contract agreement, a few legal aspects worth addressing are those which relate to jurisdiction, dispute resolution, and intellectual property rights.
Jurisdiction
Jurisdiction over a court case and jurisdiction of a contract are two different things. Jurisdiction over the court case refers to the location of the trial. Jurisdiction over the contract refers to the law governing the contract. It is important to understand where your distributor is located and where your business is located to determine which jurisdiction will preside over any potential litigation that may arise.
Dispute Resolution
Having a designated dispute resolution process may go a long way in keeping the peace between you and a distributor. Two common options for dispute resolution are mandatory arbitration and mediation . Mandatory arbitration occurs when both parties agree to present their case to a third party who must then render a decision. Mediation allows both parties to work together, rather than against one another, with a third party in order to come to a mutually-agreeable resolution.
Intellectual Property Rights
If you are in an industry that depends on intellectual property rights, or if you plan to be in this type of industry, it is vital that the corresponding provisions are included in your distributor contract agreement. This is especially important if your distributor will be undertaking any product development or custom formulation with your products. In fact, including such provisions might very well be seen as an incentive by distributors because they may be able to benefit from your intellectual property, i.e. patents, for their own purposes.
Pitfalls to Avoid in Distributor Agreements
The following are some common pitfalls to avoid when using a template for distributor contracts and agreements:
Lack of clarity. A common mistake when using a generic distributor contract template is that it can be vague and does not identify the products that will be sold. Without knowing what exactly will be sold, you may have problems down the road (e.g., importing/exploring goods when they are prohibited by your country or locality). Even if the main types of goods are identified, it is probably good practice to be specific (e.g., you would prefer to include the specific product or products you will be distributing rather than a blanket list of items). Ensure that the agreement outlines exactly what you want to include.
Omission of clauses or terms. It is easy to overlook clauses that should be included in a distributor contract template you plan to use, even though they are quite common in such documents. Pay careful attention to the following clause and section types:
Compliance with laws. It is important to include a section in your distributor contract template that explicitly states that all parties must follow any local, state, and federal laws, regulations, and codes. It is also a good idea to consider including such state regulations later in the dealer contract, like the termination, choice of law, and approval sections.
How to Select the Best Template Provider
Finding a reliable provider for distributor contract templates is crucial in ensuring that your business is protected by legally binding, well-drafted contracts. Not all contract template providers adhere to high professional standards, and some utilize contract boiler plates that may not be compliant with the laws of the relevant jurisdiction, or may contain clauses or terminology that is too vague or confusing to be enforceable. To avoid wasting time and money getting your contracts revised or rewritten, consider the following factors to select a reputable distributor contract template provider.
Check for qualifications. Reliable contract template providers are those who specialize in drafting contracts. You can usually find this information in their website ‘About’ page. In addition to basic educational requirements such as a degree or diploma in business, accounting, or law, reliable contract template providers must have adequate training in drafting and experience in commercial law. This allows them to efficiently aid clients in drafting legally compliant and thorough contract agreements . Many of these businesses have experienced contract attorneys on staff to help ensure that they obtain provider licenses from nationally recognized associations. You may request to view the provider’s professional licenses and credentials to establish their expertise.
Customer feedback. Reliable contract template providers usually have an extensive portfolio of customer reviews and testimonials on their website. Alternatively, you can use independent review platforms such as Yelp and Google Reviews to perform diligent research on a potential provider. Consider browsing through the provider’s past reviews to see whether the majority of its clients tend to be satisfied with its products and services. You should also search for complaints or negative reviews to get insights into any potential issues regarding the quality of their products and whether or not they tend to honor refund requests or other guarantees.
Licensing and guarantees. Before settling on a potential contract template provider, inquire whether they offer a money-back guarantee or allow customers to review and edit drafts of the contract templates for an extra fee. This ensures that you get a fair deal in case the contract template does not meet your expectations.
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