Distribution Agreements and C&F Agreement

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Distribution Agreements and C&F Agreement

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Distribution and C&F Agreements

Rs.14,999/- Exl. Of GST

About Distribution Agreements and C&F Agreements

Distribution Agreements and C&F Agreements generally arise with respect to the Manufacturer and their products. It is generally not feasible for Manufacturers to oversee the distribution of their products to suppliers, or handle the clearing of the products with customs, or coordinating the transportation of the products with the carriers and other shipping-related activities. While the manufacturer may have an idea as to what they expect to achieve, the practicalities involved in overseeing and monitoring the work of a distributor or C&F agent are too expensive in terms of labour and capital.

Utilising a distribution agreement with a distributor and a C&F agreement with a C&F agent enables the Manufacturer to specify the manner in which their products must be handled, transported, and marketed. It allows the manufacturer to have a certain degree of control over the process while allowing the manufacturer to focus mainly on producing the product.

Frequently Asked Question

Why do we need a distribution agreement?

  • In most cases, it is not feasible for a manufacturer to oversee the sales of the products to and through retailers. Outsourcing the work to a distributor is an easy way out for most manufacturers as the distribution of the products is left to the distributor. However, with their product, the manufacturer is also entrusting the goodwill of the company to the distributor to a certain extent.
  • Furthermore, certain products are required to be stored, packed in a certain manner to preserve shelf life or utility. There are various other factors to consider as well, such as damages to the product during transport, adulteration of the goods, tampering of the goods, etc.
  • Distribution Agreements are not solely exclusive to manufacturers of products as well. They apply to services as well, most specifically Software-as-a-Service manufacturers. Questions regarding Intellectual Property Rights, what rights the distributor has with respect to the property must be answered as well.
  • Therefore, it is necessary to have distribution agreements that exhaustively deal with the numerous logistics and operations that arise when dealing with the distribution of goods and services.

How does a distribution agreement protect the interests of the distributor?

The distribution agreement can specify the rates at which the goods and services are sold to the distributor and at what price the distributor can sell them to retailers. It can specify whether the distributor can replicate the goods and services or modify them in any manner for any purpose. It can give provisions regarding whether the distributor must undertake responsibilities with respect to promoting the goods at trade shows, exhibitions, etc. It allows the supplier to have a certain degree of control over how the products are sold and is a mechanism for monitoring the activities of the distributor.

An example would be assigning a retail-buy-price, thereby ensuring that the distributor does not sell the products at a price exceeding or below the price fixed by the manufacturer.

How does a distribution agreement protect the interests of the distributor?

Distribution Agreements generally impose targets that the distributor must achieve in sales for the continuation of the contract. To meet these targets and conduct business, the distributor requires certain assurances from the manufacturer as well. This can be by way of assuring that the price at which the distributor acquires the goods will not be revised for a certain period of time, or providing the distributor with exclusive distribution rights for a certain area thereby ensuring that other distributors will not undercut prices and harm the business of the distributor.

What terms must be included in a distribution agreement?

A distribution agreement is heavily dependent on the product being sold. Lots of terms such as exclusivity relating to the product, exclusive distribution rights of the distributor vary depending on the product being sold.

Some terms however are provided below. They are as follows –

  • Appointment and authorization of the distributor
  • Term
  • Payment – method, and prices.
  • Transport and storage
  • Exclusivity
  • Termination
  • Transfer of risk and finalisation of a sale

What should you check as due diligence prior to entering into a C&F agreement or Distribution Agreement?

Due diligence must be conducted to ensure whether the party has the authority to enter into a contract and if the subject matter of the contract is legal. Surrounding legalities must be observed as well.

Attention must be given to whether the distributor has the appropriate licenses to distribute the products in the area being allocated for the distributor to operate. In addition to the same, the licenses and registration requirements relating to taxation must be checked as well.