Module 1 · Chapter 1
Distributor or Agent: What a Distribution Agreement Is
A maker that sells abroad can use an agent, its own office or a distributor that buys and resells. This chapter shows why a distributor often wins, and what each side wants from the deal.
In this chapter
- Why a maker sells abroad through a distributor, not an agent or its own office
- What the maker and the distributor each want from the deal
- Who is who, and how the deal runs from first talks to the end
1.1A distribution agreement in one paragraph
A maker that wants to sell abroad often appoints a distributor: a business there that buys the maker’s goods and resells them to its own customers. A distribution agreement sets the terms of that appointment. This workbook follows one such agreement, clause by clause. You are a trainee in the commercial team at Marchbank Orme LLP, a law firm in Nottingham, and you act for the maker.
Key point
The agreement creates the deal. Exclusivity, targets and the rights at the end exist only because it says so.
1.2A coffee machine maker goes abroad
Cressby makes coffee machines in Nottingham. It rents them, with a service plan, to offices, hotels and cafés across the UK, including a few in Northern Ireland. It has never sold a machine abroad.
Now it wants to sell in Ireland, which in this workbook means the Republic. Tullavane, a company in Dublin, sells coffee beans to firms across the country. It also services other makers’ coffee machines, with its own engineers and vans.
The two companies sign the Agreement in March 2027, after three months of talks, and Tullavane becomes the exclusive distributor for Ireland. Exclusivity means Cressby appoints no other distributor and supplies no customer there itself.
There is one exception. A few hotel groups already rent Cressby’s machines for their hotels in the UK, so Cressby supplies their Irish hotels itself. These are the reserved hotel groups.
The deal runs for three years from 1 April 2027. These are the people in it:
| Who’s who | What they do |
|---|---|
| Cressby Limited (“Cressby”) | A coffee machine maker in Nottingham, and your firm’s client. |
| Tullavane Coffee Systems Limited (“Tullavane”) | A Dublin company that sells coffee beans and services coffee machines. It becomes Cressby’s distributor. |
| Neil Ashwick | Cressby’s chief executive and a director. He signs the Agreement. |
| Esme Cordell | Cressby’s Head of Sales. She runs the deal for Cressby. |
| Miriam Kestle | The commercial partner at Marchbank Orme who supervises you. |
| You | A trainee in Marchbank Orme’s commercial team. |
The heart of the deal is one short clause. It makes the distributor a buyer, not an agent:
The Distributor buys the Products from the Supplier and sells or rents them in its own name and for its own account. The Distributor is not the Supplier's agent and has no authority to make any contract or promise on the Supplier's behalf.Read in the Agreement →
Here “the Supplier” is Cressby, “the Distributor” is Tullavane and “the Products” are the machines. “For its own account” means Tullavane keeps the profit on each machine and bears any loss. The last sentence means a customer cannot hold Cressby to a promise made by its distributor.
1.3Why each side wants a distributor
Cressby has five reasons to want a distributor:
- It can sell abroad without setting up a company there.
- It has engineers and customers from the first day.
- It is paid for each machine within 30 days.
- The distributor carries the risk that a customer stops paying, except at the reserved hotel groups.
- Someone in the EU must answer for every machine sold there, and Tullavane can be that someone.
Tullavane would carry that duty as the importer, the firm that brings the machines into the EU (Chapter 7).
Tullavane has its own reasons:
- It gets a range of its own to sell or rent, not only other makers’ machines to service.
- Exclusivity protects what it spends on stock, training and vans.
Customers gain too. They rent from a local firm, with engineers close at hand.
Why write all this down? Nothing makes Tullavane the only distributor unless the Agreement says so. The same goes for the yearly targets, for who owns a machine until it is paid for and for what happens at the end. And competition law limits what the contract may say, so each clause that restricts either side must be checked.
1.4Agent, distributor or a company of its own
A maker can sell abroad in three ways. An agent finds customers and makes contracts in the maker’s name, for a commission (a share of each sale). A distributor buys and resells in its own name. Or the maker opens its own company there. The table compares the three:
| Agent | Distributor | Cressby’s own Irish company | |
|---|---|---|---|
| Stock | Cressby owns every machine. | The distributor buys the machines. | The new company owns them. |
| Customers | Each customer contracts with Cressby. | Each customer contracts with the distributor. | Each customer contracts with the new company. |
| Credit risk | Cressby’s. | The distributor’s. | Cressby’s group carries it. |
| The end | Irish law normally gives the agent compensation. | Only what the contract gives. | No end, but staff and costs from the start. |
Tullavane asked early in the talks to be an agent instead. It would sell and rent the machines on commission, with no stock to buy. Miriam advised against it, for two reasons.
First, a commercial agent who sells goods in Ireland is normally owed compensation when the agency ends. That holds even if the agent also arranges rentals, and whatever law the contract chooses. The rule comes from the Irish Commercial Agents Regulations.
Second, every customer would sign with Cressby. So it would carry each customer’s credit risk, the risk that the customer never pays.
Tullavane accepted clause 2.2 in the end: it buys the machines, and sells or rents them in its own name. Its real fear was being left with unsold machines at the end. So clause 23.1 makes Cressby buy back unsold new stock at the price paid for it, as Chapter 10 explains.
1.5The deal from first talks to the end
The deal runs in five stages, and later chapters take the Agreement clause by clause:
| Stage | What happens |
|---|---|
| Talks | Esme and Tullavane agree the commercial terms. You draft the Agreement from the firm’s precedent (its standard form) and keep the issues list. |
| Signing | Neil signs for Cressby, and a director signs for Tullavane. |
| Delivery | Tullavane collects the machines from Cressby’s premises in Nottingham and pays within 30 days. |
| The years | Three years, each from April to March. Tullavane pays €4,000 a machine and has a target each year: 200, 300 and 400 machines. |
| The end | The Agreement does not renew by itself. Cressby buys back unsold stock and may buy rented machines whose customers agree to move. |
1.6Your job
Miriam asks you to keep the issues list, a table of every point the two sides have not yet agreed. It goes to each meeting and shrinks as points close. For each point, record:
- The clause it concerns, and the words each side wants.
- Each side’s position, one line each, with the reason.
- Who must decide it for the client.
- Any restriction that competition law may not allow, flagged for Miriam.
- Any question of Irish law, for the Irish solicitors.
- Whether the point is open or closed, and how it closed.
The agency point is the first to close. Clause 2.2 makes Tullavane a buyer, and clause 23.1 meets its fear of unsold stock.
Key takeaways
- A distributor buys the maker’s goods and sells or rents them in its own name.
- Irish law normally gives a commercial agent compensation when the agency ends, whatever law the contract chooses.
- The distributor, not the maker, carries the risk that a customer never pays.
- Exclusivity, targets and the rights at the end exist only because the Agreement creates them.
- The buy-back in clause 23.1 meets the distributor’s fear of unsold stock.