A Brief Introduction About the Reseller Agreement
Using resellers is a great way to expand the supply and distribution of your product/service. It allows you to enter new markets or cater to niches in the market that you might not have thought of entering before. A reseller agreement is a legally binding document drawn between a vendor and a reseller that authorizes the reseller to sell the vendor’s products or services to a third party. The agreement contains many terms such as consideration, orders, the appointment of reseller, resale of services, and other important terms. They are often used as IT contracts to distribute software. It is also called a reseller contract.
Who Takes the Reseller Agreement? – People Involved
You would need to enter into a reseller agreement if:
- You are a vendor looking to expand the distribution chain of your product/service through a reseller.
- You are a reseller looking to sell the vendor’s products/services.
The contracting parties here are the vendor and the reseller.
Purpose of the Reseller Agreement – Why Do You Need It?
The purpose of a reseller agreement:
- Is to list down the terms and conditions of the agreement in a single comprehensive document.
- Establish the relationship between the contracting parties as vendors and resellers.
- Specify the terms related to orders, prices, discounts, delivery, and other responsibilities that come with the agreement.
- Aid the resolution of disputes by means of conventional and alternative dispute resolution methods.
Contents of the Reseller Agreement – Inclusions
An effectively drafted reseller agreement must be detailed and include the following terms:
- Effective Date: This mentions the date on which the agreement becomes effective. It is a standard yet critical clause that must be included.
- Parties to Contract: This clause identifies the parties to the contract, that is, the vendor and reseller. It must mention their names and addresses.
- Appointment: This clause appoints a certain entity as a reseller.
- Consideration: This clause lays down the consideration that the reseller will receive for selling the product/service of the vendor.
- Orders: This clause prescribes how the reseller is to place orders with the vendor for products and services.
- Delivery: This clause states how and when the products will be delivered to the reseller.
- Marketing: This clause discusses how the products/services should be marketed by the reseller. It will include sub-clauses about promotional material, licenses, data collection, and marketing practices.
- Resale: This clause includes details on how the reseller must sell the products to customers. This clause will also talk about whether the reseller is allowed to rebrand products.
- Trademarks and Copyright: Trademarks and Copyright clause reserves the trademarks and copyrights of proprietary products and services of the vendor.
- Support: This clause is used to define the vendor’s role as a support provider post-sale of product/service.
- Termination: This clause specifies the circumstances under which the agreement may be terminated.
- Governing Jurisdiction: This clause specifies the jurisdiction that will govern any disputes that may arise out of the agreement.
- State-specific Laws: Include any clauses and terms that may be required for compliance with state-specific laws and legislation.
How to Draft the Reseller Agreement?
The procedure to draft a reseller agreement:
- Specify the date on which the agreement will be effective; that is, the date on which the agreement will come into effect.
- Recognize the contracting parties with their names and addresses.
- Establish the relationship between the parties.
- Include an appointment clause that establishes an entity as a reseller of the vendor’s products. This allows the reseller to sell the vendor’s products to third-parties.
- Include a clause that will spell out the terms of the consideration to be paid to the reseller for selling the products/services of the vendor.
- Include a clause that will detail how orders will be ordered and delivered.
- Ensure that you include a clause that talks about the marketing of the product/service.
- A resale clause must be included to determine how the reseller can sell the vendor’s products and services.
- Ensure that a clause that reserves rights over trademarks and copyrights is included.
- If the product requires the vendor to provide after-sales support, then you should include a clause that will allow you the vendor to do so.
- Ensure that a termination clause that decides what circumstances would allow the termination of the agreement is included.
- The agreement should state the name of the jurisdiction that will govern the document and any disputes that arise from it.
- Have the parties to the contract sign it to signify acceptance of terms.
Make sure that the agreement complies with local, state, and federal laws. Also, make the terms are simple, explicit, and void of ambiguity.
Negotiate the terms of the contract such that it is mutually beneficial and agreeable to both parties. This will instill confidence and good faith in the parties, reducing the chances of disagreement or dissatisfaction, which often lead to disputes. The contract should not unfairly benefit one party at the expense of the other unless agreed upon. The parties must make sure that they negotiate according to the established procedures for all parties to get the highest returns on their investment equitably.
Benefits & Drawbacks of the Reseller Agreement
The benefits of having a reseller agreement:
- Lays the terms and conditions of the transaction in a single comprehensive document that is accessible to the parties. This avoids any ambiguity and miscommunication.
- Safeguards the legal interests of both parties.
- Ensures that each party is aware of its rights and obligations and that they are acting to that effect.
- Allows vendors to increase sales and explore new avenues in the market.
- It allows for the widespread distribution of the product.
- Makes legal recourse an option, should a dispute arise.
- Gives legal transaction validity.
The drawbacks of having a reseller agreement:
- The legal costs of framing the agreement must be borne by one or both of the parties.
- Negotiations can take time.
What Happens in Case of Violation?
If the terms of the agreement are breached by either of the parties, the other may be able to go to court. However, the resolution of disputes using conventional dispute resolution methods is not preferred. Ideally, a dispute should be settled internally amicably. However, this is often not possible, making arbitration and alternative dispute resolution methods more preferable. While going to court is always technically an option, it should be the last resort in terms of dispute resolution. Resolving an issue internally is much less expensive to both parties than going to court over it.
Reseller agreements are used when a business wants to expand its supply and distribution by authorizing resellers to sell their products and services to customers. The reseller agreement appoints the reseller and lays down instructions for both the reseller and vendor. Any disputes that arise from the transaction shall be governed by the document.
You can download a reseller agreement template here.