What Is a Wholesale Distribution Agreement?
A wholesale distributor agreement is entered into between two parties, the manufacturing company and the distributor. The distributor needs to restrict the sale of the products within the territory defined by the company. The product and the geographical area within which the distributor has to sell the goods are mentioned in the agreement. The distributor may appoint sub-agents for marketing of the products.
In case of an exclusive wholesale distribution agreement, the company cannot appoint another distributor in the same geographical area and grants exclusive rights to the distributor with whom the agreement is entered into.
When Do You Need a Wholesale Distribution Agreement?
When a manufacturing company wants to sell products in a different market, or to distribute its goods in any market because it does not have enough resources to it by itself, or to prevent the sale of the goods outside a certain territory, or to undervalue the goods by any third party, and t prevent hoarding, it employs a distributor and enters into this agreement
The agreement ensures that the company cannot appoint another distributor in the same territory for selling the same product.
The price at which the company will sell the products, including discounts, and the distributor will buy the same are clearly mentioned in the agreement. This will minimize disputes in the future.
Inclusions in a Wholesale Distribution Agreement
If you look at a standard wholesale and distribution agreement sample, you will find the following information:
- The names of the parties to the agreement
- The effective date of the agreement
- The geographical territory for which the distributor is being appointed
- The details of the products to be sold in that territory
- Appointment of sub agents — whether the distributor can appoint sub-agents or not
- Price at which the product will be supplied to the distributor
- No party should disclose any proprietary information to a third party — NDA clause
- Whether the agreement is exclusive or not
- The responsibility of bearing distribution and marketing costs
- Clauses for minimum number of sales
- Clauses on the price to be set for distribution
- Clauses that prohibit the distributor from trading in competitor’s goods as well
- Exclusivity clause for appointing a single distributor
- Cost of insurance to be made for the goods in transit
- Risk of loss of goods in transit from the company to the distributor — when the possession goods transfers to the distributor
- After-sale customer service responsibility
- Royalties and commissions payable
- Notice of any updates in the product
- Responsibility of the manufacturer to provide the distributor with the updated information and the new products as soon as they are released
- The responsibility of costs of transportation and other taxes
- The distributor is not prohibited from his business in the state or country he’s operating in
- Consent of the parties to act according to the guidelines of the agreement
- Governing laws
- Warranties and representations
- Covenants of the distributor and the manufacturer
- Fines and penalties
- Conditions of the storage space
- Limitations on the use of the manufacturer’s brand and copyright for marketing purposes
- Termination of the agreement with the notice period
How to Draft a Wholesale Distribution Agreement?
You can refer to a wholesale and distribution agreement template when drafting an agreement. The points to consider when drafting the agreement are:
- The eligibility of the parties to conduct business in the area that the distributor is employed
- The amount of proprietary information required and the NDA for that information for a certain period after the end of the agreement
- Fines and penalties levied for various purposes
- Clauses for premature termination or when the performance is not as expected
- Conditions of the godown that the distributor is required to make for storing the goods
- The communication in case of fault goods receipt
Benefits of a Wholesale Distribution Agreement
There are several benefits to the agreement. They are:
- The manufacturer can reach new markets and more customers
- The manufacturer’s revenue increases because of this agreement
- The distributor gets exclusive access to the products, and all new products as they are released
- The distributor can use the manufacturer’s brand to market and use the goodwill that the manufacturer has
- The manufacturer can also be assured of a regular flow of income
- For goods with high goodwill, high demand, and high price, the distributor can make profits from the discounted prices he receives
Key Terms/Clauses in a Wholesale Distribution Agreement
The key terms or clauses that are part of an agreement are as follows:
- Preamble: The purpose of the agreement
- Agreement of parties: Exclusive appointment, territory, products, subagents, the relationship of parties
- Order, Price, Terms of Sale and Payment
- Representations, warranties and Covenants
- Confidential & Proprietary Information
- Duration and Termination
- Rights of Parties at Termination
- Indemnification and limitation of liability
- Force Majeure
- General Provisions
What Happens in Case of Violation?
When there is a violation of any clause in the wholesale distribution agreement, the company or distributor will send a legal notice to mention the violation and the corrective action required. If that fails, the following legal remedies are available.
Money damages will be charged in case of total violation of contract along with lost profits.
If there is fraud involved, then the contract could be cancelled under rescission or a new contract drawn under reformation.
If the contract is at an advanced stage, then the contractual obligation has to be fulfilled, and money damages will not be accepted.
Sample Wholesale Distribution Agreement
Download Wholesale Distribution Agreement Sample from below.
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