What is a distributorship agreement?
A distributorship agreement is typically a contract between a manufacturer and a distributor. This agreement would stipulate the rights and regulations to the distributor to resell the manufacturer’s goods and services.
What are the types of distributorship agreements available?There are mainly two types of distributorship agreements;
1. Exclusive agreement
In an exclusive agreement, the specified distributor will be the sole distributor with the distributorship rights to sell the goods or services within a specified geographic region and time period. Such exclusive agreements would generally involve consumer goods that have a niche or specialized market. Sole distributors should have the expertise of the relevant market.
2. Non-exclusive agreement
In a non-exclusive agreement, the manufacturer may supply to multiple distributors, typically competing in the same market. Such non-exclusive agreements would generally involve consumer goods that are catered to the general public that are sold in larger volume.
What are the essential terms of a distributorship agreement?
In Singapore, there is no specific legislation that governs such distributorship agreements. Hence, contractual principles would apply to distributorship agreements.
A well-drafted distributorship agreement would typically include:
1. Term and geographic boundaries of the distributorship agreement.
A distributorship agreement should define the scope of the distribution arrangement by setting out the geography or territory, range of products and its relevant market and type of distribution agreement.
2. Terms and conditions of the distributor supply.
A distributorship agreement should also provide for the obligations of the transaction between the manufacturer and distributor(s). For instance, the obligations can be minimum sales targets, specification of the type of marketing to be done and also how often the distributor is to report sales, customer feedbacks and product issues. Usually, obligations will be more onerous for exclusive distributorship agreements.
3. Intellectual property rights of the product.
A distributorship agreement would typically provide for the manufacturer’s retention of intellectual properties rights. The agreement may also stipulate the distributor’s scope of usage of the manufacturer’s trademarks.
4. Applicable warranties
There may be a clause that provides for warranties that are applicable only to certain products. Such terms may be set out:
a. Whether there would be warranties for the goods or services provided.
b. Whether the distributor is authorized to repair the goods provided.
5. Non-competition clauses and non-disclosure clauses.
A distributorship agreement might also include a non-competition clause in order to prevent the distributor from distributing competitors’ products. A non-disclosure clause may be included as well in order to keep certain information provided to the distributor/s confidential.
6. Termination of the agreement
A distributorship agreement would also set out the procedure and effect of the termination of the distributor agreement. This allows the boundaries of the transaction to be stated clearly where certain provisions regarding the process of terminating the agreement and the obligations owed by the distributor post-termination.
A distributorship arrangement would be suitable for the manufacturer and distributor both require more than a simple buy-and-sell arrangement. Such agreements can be mutually beneficial as terms can be negotiated and set out clearly between parties. There is no legislation that governs such agreements in Singapore, hence, it would be best to seek legal advice.
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact me at firstname.lastname@example.org.