The agreement should also specify the duration of trade relations. In addition, procedures should be put in place to address renewal and shutdown issues. Suppliers who use channel partners as part of their distribution network can use a one- or two-step distribution channel. In a one-step distribution system, the provider develops relationships with channel companies such as VARs, System Integrators (SIs) and Managed Service Providers (MSPs) — which sell to end customers. In a two-tier system, the supplier sells products to an independent distributor who in turn supplies products to channel partners who then package solutions for end customers. The two-step model requires dealer agreements to facilitate relationships between distributors and channel partners. In some distribution agreements, competition is an important factor. The common clauses in a distribution contract limit the distributor to sourcing similar products from the supplier or wholesaler. In addition, there may be a restriction for a distributor to compete with the supplier or wholesaler during distribution or agreement and even after expiry. However, competition restrictions may not apply to all products. They generally apply where the product is unique (and cannot be purchased by other suppliers or wholesalers) or where the distributor has greater bargaining power. In a seminar we attended, a lawyer from a very large company told an interesting story.

The company had always entered into oral distribution agreements on the basis of a handshake. It decided to write an agreement to commemorate the exact relationship with its distributors. The lawyer said the exercise was very bad. Distributors (and even some people in the company) interpreted the company`s desire for a written agreement as a sign of mistrust; whereas, for many years, the parties have built their relationship on feelings of mutual trust. The company implicitly rejected the idea of a written agreement because it simply did not work for it. Note, however, that in this situation, the parties involved have already had a long history of oral collusion on the basis of a handshake. This is a different situation from a cleaner slate. Include Distributor Commitments: Suppose you and your distributor have set revenue targets or even minimum purchase amounts, otherwise you are entitled to terminate the exclusivity or the entire contract. In the real world, you cannot impose these sanctions as quickly. They are often subject to long grace periods, other conditions or both, so that they do not in fact give them any real guarantees.

Therefore, it is very important that you conduct due diligence for your distributor and receive a detailed business plan. This business plan should at least include commitments with respect to marketing expenses and the details of human resources to be allocated to distribution. If you add an appropriate incentive to achieve revenue goals, you will gain some confidence in the fact that you have an appropriate, competent and motivated distributor. G. The obligations of the recipient party under this section 6 remain in the event of termination or non-renewal of that contract for a period of [number of years] of years.