When a company creates a product, it must find buyers for it. It’s possible that a well-established business can sell directly to consumers, but there are other scenarios in which the company doesn’t have the know-how to successfully market and sell its wares to either consumers or other businesses.
If this is the case, it will team up with a distributor already established in the desired market.
For this reason, it will need to enter into a legal agreement with the distributor that will govern their relationship, explicitly explain the parameters of their cooperation, and authorize the distributor to market and sell the products.
In short, this legal contract between the business owner and the distributor is the Distributorship agreement in India.
Distributorship Agreement Format in India
Now that we have shared what the distributorship agreement format in India should look like, let us dive deep into its contents, benefits, and why it is a crucial document when a business owner decides to expand his business in India using a distributor.
Basic Contents of a Distributorship Agreement Format in India
Companies can grow and get access to new markets with the help of a solid distribution arrangement. In addition, the distribution agreement gives the business owner the flexibility to set the terms and sales goals for the product as you see fit.
12 Crucial Contents of the distributorship agreement are:
1. Territory
The clause should outline the areas where the distributor can promote and sell the product. The distributor may argue that, with the supplier’s approval, the territory’s boundaries may be expanded or contracted.
2. Roles of the Business Owner & Distributor are to be laid out in the agreement
This is the most crucial element of the agreement since it lays out the specific duties and responsibilities of each party.
The role of the business owner includes:
- Bring in the agreed-upon items.
- Offer any and all product education, technical support, and information that may be required.
- Keep to the agreed-upon schedules for delivery.
- Make room in your budget for marketing or advertising costs.
- If the distributor needs more information, provide it to them.
- Paying on time
The role of the Distributor includes:
- Always have enough stock on hand.
- Reduced anticipation during shopping.
- Sales, responsibility, and client satisfaction targets should be created.
- Distributors are also responsible for meeting sales objectives, running sales campaigns, completing the necessary documentation, and providing follow-up customer care.
3. Contract Duration
This section should include information about the duration of the Agreement, its effective date, the date it will expire, and whether or not it will be renewed.
4. Confidentiality
The clause should specify how the distributor may put the IP to use. It should also restrict the distributor’s capacity to disclose confidential information.
5. Marketing Activities
Product promotion could fall under the purview of the distributor, the manufacturer, or both. If the distributor is also responsible for advertising the goods, the manufacturer or supplier may place restrictions on the advertising channels, methods, and guidelines the distributor may employ.
6. Keeping the business owner updated with the necessary reports
The manufacturer may request periodic reports from the Distributor regarding sales, inventory, advertising, and other aspects of the Agreement. This is of the utmost importance in situations when the distributor receives a commission or the supplier is obligated to buy back unsold inventory.
7. Payment details
Whether the distributor will be paid a sales commission or will make a profit after buying in bulk and reselling is one of the most crucial parts of any distribution agreement.
What happens to unsold stock and whether or not the distributor is required to sell the items at a minimum or maximum price are also details that should be mentioned in the contract.
8. Degree of training for the distributor
Many technology products have clauses that outline who is responsible for providing client training and support, as well as how much training and support the manufacturer will provide to the distributor.
9. Forecasting
The manufacturer has the same obligations as the distributor regarding meeting sales targets. On rare occasions, the distributor may be required to make a minimum purchase of the goods.
Predictions will be supplied at intervals specified in the contract to serve as the basis for these minimum standards.
10. Trademark License
The distributor’s rights to use intellectual property like trademarks and brand names must be specified.
Otherwise, the distributor runs the danger of legal action if it uses the trademark without the owner’s authorization. Since the manufacturer does not want the distributor to claim ownership of the trademark, he must be careful when and how he grants the distributor this power.
11. Competition
The distributor may be prohibited from selling the supplier’s products, selling similar things from the same supplier, or competing with the supplier during and after the term of the agreement (though this provision is optional).
This is more common with one-of-a-kind items than with those that come in dozens or even hundreds of different styles.
12. Termination Clause
One or both parties may need to terminate the Agreement at some point, thus it is important to spell out the conditions under which this can be done, as well as the consequences of doing so.
Must Read: How SolaX signed a 100 MW distribution agreement with Solaris Techno India.
Importance of Distributorship Agreement in India
- Clarity on Sales Targets – The sales target assigned to the distributor is a fundamental part of any distribution agreement. You may rest easy knowing that your distributor will put out maximum effort to sell your goods and meet your predetermined quota if you establish this goal in advance. Legally guaranteeing your share of the distributor’s profits is a huge step towards achieving your business goals.
- Low Risk – By outsourcing the distribution of your goods, you absolve yourself of a large portion of the dangers inherent in running a business. Once a distributor takes on a product, it is their duty to sell it. This potential source of trouble can be avoided with a well-crafted distributor agreement.
- Business Expansion Possibility – A solid distribution agreement can help you secure representation in areas where you wouldn’t be able to do so on your own. This broadens the potential customer base for your goods, both domestically and internationally. Because distributors typically base their decisions to take up these products on the terms stated in the agreement, establishing this relationship of networks and distributors for your business requires a proper Distributor agreement.
Distributorship Agreement Format FAQs
Q.1. what is the difference between a distributorship agreement and a franchise agreement in India?
Under the provisions of the franchise agreement, the franchisee is authorized and encouraged to make use of the franchisor’s trademarks and brand name in the course of conducting business as usual. In the case of a Distributorship agreement, a distributor may not use the company’s trademarked name in connection with the distribution of the company’s products. Instead, the wholesaler conducts its business under its own name. It acts as a distributor, albeit it does not represent the manufacturer in any way.
Q.2. what are the types of distribution agreement formats in India?
Exclusive distribution agreement, non-exclusive distribution agreement, wholesale agreement, commission distribution agreement, and developer distribution agreement are five types of formats in India.
Conclusion,
We’ve researched everything there is to know about distributor agreements in this article, and it’s clear that doing business through distributors is a low-risk, cost-effective way to break into developing foreign markets.
Make sure you have a well-defined formal distribution agreement in place before moving forward with a distribution deal. Although entering into a distribution deal can be exciting and fruitful, it’s important to weigh all of your options before making a final decision.
Now that you have read this, you should feel confident in your ability to create an effective distributor agreement, and with Sparkleminds by your side, you won’t even have to lift a finger!
