Structure of a Distribution AgreementA distribution agreement allows a distributor to transport or resell products bought from a manufacturer. The manufacturer supplies the products and the distributor functions as the vendor, either as a wholesaler or retailer. The distribution agreement may be exclusive, with a single distributor serving a manufacturer for a specific product or region. The agreement may also allow multiple distributors to work with multiple manufacturers. The manufacturer typically states the terms of the agreement, including any marketing tactics or product licensing procedures, and the distributor agrees to abide by those terms. Negotiation and RevisionIn the absence of any termination clause in the distribution agreement, the manufacturer and distributor can negotiate a revision to the current agreement. If the parties still see the relationship as profitable and worthwhile, renegotiation shows that they can still work together even though their circumstances have shifted since they signed the initial agreement.
These efforts also show that even if the parties cannot reach a new agreement, they can work together to avoid a costly lawsuit. Termination Notice and CompensationThe party attempting to end the agreement must offer as much advance notice as possible to the other party. This advance notice allows the other party adequate time to make alternate arrangements. Without a specified time frame outlined in the agreement's termination clause, some states require up to 90 days of advance notice for terminating a distribution agreement.
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The agreement may also require one party to compensate the other for the income lost because of the termination.