Guidelines for Composing a Reseller Contract
In the world of business, establishing strong reseller agreements is crucial for manufacturers looking to expand their reach. Here's a guide on key considerations to make when drafting such agreements.
Manufacturers' obligations extend beyond just supplying products. They should also provide sales leads, samples, advertising, training, support, honour warranty and return obligations. Export/import regulatory compliance is another essential factor to consider.
To prevent exclusivity issues, contracts should outline sales quotas or performance benchmarks and include easy termination clauses or consequences for non-compliance. Defining authorized sales channels, territories, and specific markets for resellers is vital to maintain control and avoid conflicts or unauthorized resale.
Setting clear sales quotas or performance metrics creates measurable goals and accountability. Including easy termination provisions allows the supplier to end the agreement or revoke exclusivity if resellers fail to meet agreed benchmarks or breach contract terms. Penalties like fines or loss of exclusivity should be specified.
Time-limited exclusivity, granting exclusivity for fixed periods, enables periodic performance review and contract renegotiation or termination if performance is poor. Defining specific territories, platforms, and customer segments minimizes internal competition or conflicts involving product lines.
Including audit rights in contracts allows verification of compliance by reviewing sales records and inventory, helping to detect potential breaches early. Legal expertise should be engaged to tailor and regularly update contracts to industry and market demands.
Force Majeure clauses should be considered, especially in relation to the likelihood of calamities and political instability in the target market. Governing Law should be specified to avoid litigating insignificant disputes in foreign jurisdictions.
Indemnification is another important aspect. Parties must reimburse each other for damages resulting from their mistakes, especially if the reseller is authorized to install the product or make representations to customers.
The contract should specify whether it automatically renews and under what conditions it can be terminated. Shipping, allocation of risk of loss upon shipment, and drop shipping directly to the reseller's clients should be addressed.
Documents-Only Arbitration allows parties to resolve disputes remotely, saving time and money. Resellers should not be allowed to make guarantees that are not expressly approved by the manufacturer. The reseller's obligation to make their books available for manufacturer inspection should be outlined.
The reseller's obligations should include advertising efforts, customer service, insurance, permits, licenses, compliance with local laws, accounting, regular reporting, and more. Non-compete/exclusivity clauses are invalid in California, but most other states allow them.
Companies should establish minimum sales quotas as a condition for maintaining exclusivity. Confidentiality clauses should be included to protect the manufacturer's product specifications, trade secrets, business model, etc. A limited warranty or disclaimer of warranties should be included, with the manufacturer's liability limited to replacing/repairing the product or issuing a refund.
Resellers should get prior approval for using the manufacturer's trademarks in marketing materials. The relationship between the parties should be defined as independent contractors, with neither party responsible for the other's taxes, benefits, and responsibilities.
The contract should address whether the reseller is allowed to use the supplier's name and trademarks. Terms of payment, discounts, and late fees should be clearly stated. Frequency of price changes should be regulated with a % cap and notice period.
A personal guarantee of performance is an advantageous provision to negotiate, where an individual (usually the owner) is liable in case anything goes wrong. A Minimum Advertised Price (MAP) policy is important, especially for online sales, to prevent resellers from competing solely on price.
Communication channels such as Facebook, Twitter, Pinterest, LinkedIn, Whatsapp, and Email can be utilised to maintain a strong relationship with resellers.
For more specific regulations, alcohol resellers in California may find the ABC Act of California useful, while a review of the free Terms and Conditions generator, Free ToS Generator, could be beneficial for drafting contracts.
- To ensure success in their business dealings, manufacturers should consider investing in finance to provide necessary resources for sales leads, advertising, training, support, honoring warranty and return obligations, and regulatory compliance.
- While maintaining a strong reseller agreement, it is crucial for manufacturers to establish clear financial obligations and stipulate performance benchmarks or sales quotas to foster accountability and prevent exclusivity issues.
