What’s the difference between a “distributor” and a “reseller”?

There is no general legal distinction between a distributor and a reseller, as both resell the products of the manufacturer or supplier to end users.

Under a distribution agreement, the supplier or manufacturer sells their products to the distributor, who then re-sells the products to their customers, adding a margin to cover their costs and profit. The distributor contracts with both the manufacturer of the products and the end customer and the title to the products passes from the manufacturer to the distributor, and from the distributor to the end user.

What about agents?

Typically, an agent is appointed by the principal to negotiate contracts with customers on the principal’s behalf. The agent is paid commission on the sales it makes and, unlike distribution arrangements, the contract for sale of the products is made between the principal and the customer. The agent generally has no contractual liability to the customer.

Drafting the right agreement

Manufacturers and suppliers sometimes distinguish distributors and resellers, but these distinctions need to be captured in the agreement to have any legal effect.

Often the term “distributor” is used to refer to a country distributor, whose territory is a whole country, with the power to appoint a second tier of resellers. Generally, distributors are granted more of the attributes of the principal than a mere reseller. So, a distributor might have greater powers to use the principal’s trade names, trade marks and intellectual property than a reseller.

In the IT industry, manufacturers often appoint “value-added resellers”, who have the right to resell only if they add their own technical value. Original equipment manufacturers fall into the same category. They make their own equipment and incorporate the principal’s products into that OEM product, so that the principal’s products are resold to the end user, within the OEM product.

Our Commercial team is available to support you with any drafting queries that you may have concerning distribution/reseller agreements.

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