A Brief Introduction of Manufacturer Representative Agreements
Product manufacturers need to partner with certain companies that specialize in marketing and selling of products to reach their target customers. These companies have the infrastructure like shop space in specific territories that the manufacturer would want to penetrate.
The marketing companies would require to be compensated for keeping the manufacturer’s products. It ensures that they get the desired visibility to attract customers, both the manufacturer and the marketing companies need to enter a manufacturer’s representative agreement. These agreements are valid for a certain period, and they are renewed on mutually agreeable terms.
The products being sold and marketed, as well as the territory, are described in detail for the sales representative. The representative has exclusive rights to sell the product, and the manufacturer cannot appoint any other representative for that particular territory. The representative cannot market the product outside the designated territory. The representative is an independent contractor, and neither party has the right to interfere in the operations of the other party.
The manufacturer’s representative commission rate, the due date, and the monthly statements for commission payments need to be mentioned in the agreement. The representative shall not be responsible for product warranties.
Who Takes Manufacturer Representative Agreements?
The two parties involved in these agreements are the product manufacturer and the marketing or sales representative. The representative acts as the exclusive distributor for the manufacturer.
Purpose of Manufacturer Representative Agreements
Manufacturers rep contracts are important because the manufacturer needs an assurance that the representative will ensure the best visibility of the products and ensure the highest sales. The representative will try and promote the manufacturer’s product to justify their commission.
The manufacturer provides the representative with the sole rights for the distribution of their products, and the manufacturer can appoint no other representative. If there are any disputes between the two parties on any clause, then they can approach a court of law for the settlement of the same. The representative will be entitled to commission on all orders successfully delivered before the date of termination of the agreement
Contents of Manufacturer Representative Agreements
You can refer to a manufacturer representative agreement template and modify it as required.
The contents of a standard agreement are as under:
- The names of the parties to the agreement, the manufacturers representative, and the manufacturer
- The definition of terms used in the agreement
- Appointment of the representative and the authority
- The sales prices shall be decided upon and established by the company. The company further reserves the rights to alter or change the same in its sole discretion.
- All trademarks, labels, containers, whether registered or not, constitute the sole property of the company.
- The consideration payable to the representative
- Confidentiality clause to ensure no sharing of information with a third party
- Availability of product and product warranty
- Code of conduct to be followed by the representative
- The representative is indemnified against all losses due to infringement on the sale of products
How to Draft the Manufacturer Representative Agreements?
Here are the points to be kept in mind:
- Eligibility to contract: The manufacturer and the representative should be over the age of 18, of sound mind, not be under the influence of drugs, or be coerced to enter the contract
- Consideration: The commission payable to the representative, including the performance parameters.
- Terms of the agreement: The commission payable under the contract should be according to industry standards, and the responsibility of the representative should justify the commission
- Confidentiality clause: The trade secrets of the manufacturer which the representative has access to should not be shared with a third party
- Dispute resolution clause: The jurisdiction, method of resolution, and attorney fees
- Obligations of the Company: The details pertaining to technical training, promotional and sales efforts and support to be provided by the company should be mentioned
- obligations of the Consultant: Sales and promotional efforts, and assistance to be provided to the company for the Sale of the Product documentation
- Termination clause including the notice period
The manufacturer should make an offer under manufacturer’s representative agreements to the representative regarding commission on sales and other clauses. The representative can make a counteroffer, and then both parties can decide upon all the clauses before signing the agreement.
Benefits & Drawbacks of Manufacturer Representative Agreements
The benefits of manufacturer representative agreements are:
- Protection of interests: The interests of both the manufacturer and representative are protected. The manufacturer gets access to a prominent location for their products, and the representative gets their commission.
- The manufacturer is ensured that the seller puts in proper effort in terms of advertising and marketing to ensure the sale of their products.
- If the parties are not satisfied with this agreement, the same can be terminated after providing due notice.
The drawbacks of manufacturer representative agreements are:
- No legal recourse: Neither party can take legal action against the other for breach of contract if there is no written agreement.
- No certainty of income for the representative.
- No assurance of effort from the representative.
What Happens In Case of Violation?
In case of violation of manufacturer’s representative agreements, here are the remedies:
- Monetary damages: The manufacturer can claim damages equalling the contract value and loss profits for a total breach of contract. The representative can claim accrued commission and penal interest
- Restitution: The money and property given by the injured party is returned to restore them to their original position(1)
- Rescission: The entire contract is canceled if found to be fraudulent
- Reformation: The court makes a fresh contract in case of fraud
- Specific Performance: Monetary damages are not acceptable, and the contractual obligation has to be fulfilled
While entering into manufacturer representative agreements, both parties should ensure that their interests are protected. This can be done by inserting the appropriate clauses, such as the dispute resolution clause, the confidentiality clause, or the termination clause. The terms and conditions should be read carefully before signing the agreement.