Your Guide to Distributor Agreements in Singapore
What is a distributor agreement?
A distributor agreement is an agreement between a supplier and a distributor which accords rights to the distributor to resell the supplier’s goods or services. Shops, including online ones that sell a variety of brands, are likely to encounter distributor agreements.
Types of distributor agreements
The main types of distributor agreements include:
- Exclusive agreement
- Non-exclusive agreement
An exclusive distributor agreement gives the specified distributor the right as the sole distributor to sell the product within a particular geographic region or within multiple regions.
Conversely, a non-exclusive distributor agreement gives the specified distributor the right as merely one of the many other distributors to sell the product. The non-exclusive agreement is typically used for fast moving consumer goods which sell in large volumes and do not require post-sales support.
Essential terms of a distributor agreement
A distributor agreement will generally contain the following essential terms:
(1) Scope of agreement
The distributor agreement will state the scope of products which the distributor will be able to sell.
For example, it may state that distributor rights extend only to a specific product or a range of products of the supplier.
The distributor agreement will provide the duration of appointment for distributorship. This can be for a specified fixed period, or an indefinite period.
The distributor agreement may also include an automatic renewal clause.
The frequency of renewal of a distributor agreement often affects how a distributor agreement is categorised and can turn a fixed term agreement into an indefinite agreement.
The distributor agreement will state the geographical areas in which the distributor may sell the specified products of the supplier.
Accompanying this are penalty provisions for selling outside this agreed territory.
(2) Terms and conditions of sale
The terms and conditions relating to the pricing and payment of the specified products are a crucial part of a distributor agreement.
The pricing terms state how the specified products are to be priced, in relation to both the distributor and consumers. These terms may also address other issues such as:
- Whether the distributor is free to set its own prices
- Whether the supplier reserves its rights to change the prices after the parties’ agreement has come into effect
The pricing terms will also state payment amounts and the mode(s) of payment through which the supplier can pay the distributor. The distributor agreement may also provide for penalties in the event of late payment.
(3) Obligations relating to supply and sale
A key section of the distributor agreement is the parties’ obligations relating to the supply and sale of goods.
A distributor commonly undertakes:
- To purchase a minimum quantity of products
- To maintain inventory
- To conduct advertising and marketing initiatives to promote the products
- To provide sales records
- To comply with all applicable laws and regulations
- To provide after-sales services
- Not to modify the supplier’s products
On the other hand, typical supplier obligations include:
- To supply products
- To provide sufficient information of the products
- To provide technical support
(4) Product rights
The distributor agreement often provides for the supplier’s retention of intellectual property rights and other proprietary rights.
The distributor agreement may also set out the distributor’s scope of use of the supplier’s trade marks and trade names for the purposes of fulfilling its obligations under the agreement.
The distributor agreement may sometimes state warranties applicable to certain specified products.
The following terms may be set out under this section:
- Whether the supplier provides warranties for the products
- Distributor’s obligations with regard to the warranties
- Whether the distributor is authorised to repair the products
- Provision of training by the supplier to the distributor for the repair of the products
(6) Restrictive covenants
Restrictive covenants limit or prohibit the use of certain specified things in the agreement.
If the supplier wants to keep certain information provided to the distributor confidential, the supplier can include a non-disclosure clause in the distributor agreement. Under this non-disclosure clause, the distributor undertakes not to disclose confidential information (other than for certain permitted purposes) and may be obliged to notify the supplier of any actual or suspected misuse or unauthorised disclosure of such confidential information.
Non-compete clauses may also be included to prevent the distributor from selling competitors’ products.
Another essential element is the termination provision, which sets out the mechanism in which the distributor agreement may be terminated.
The mechanism for termination often involves the following issues:
- Whether either party or only one party can terminate the agreement
- Whether the agreement can be terminated without cause
- Whether there is any notice period for termination and if there is, what is the notice period
- What are the terminating events or triggers
The distributor agreement will also set out the effects of termination. Provisions relating to the effects of termination may include:
- Obligations of the distributor in relation to the disposal of unsold products and other related materials
- Survival of specific terms after termination. Such terms are often provisions relating to the protection of proprietary rights and warranty and technical issues.
(8) Miscellaneous clauses
Lastly, there are the other miscellaneous provisions typically found in any contract such as those relating to:
- Entire agreement clauses
- Governing law and governing jurisdiction of the distributor agreement (especially where one party is based overseas)
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