A distribution agreement is a contract under which a supplier appoints a distributor to buy its products and resell them, usually in a defined territory. It is a key way to reach new markets, but it has important competition-law and commercial pitfalls. Here is a plain-English guide for England and Wales.
Distributor vs agent, an important distinction
- A distributor buys goods from the supplier and resells them on its own account, making its profit on the margin and taking the stock and credit risk. The customer contracts with the distributor.
- An agent acts for the supplier to introduce or conclude sales; the customer contracts with the supplier, and the agent earns commission.
The difference matters for risk, tax and termination, and the Commercial Agents Regulations 1993 (which give agents termination compensation) protect agents, not distributors.
Key terms to look for
- Territory and exclusivity, is the distributor exclusive (the only one in the territory), sole, or non-exclusive? Exclusivity is valuable but commits the supplier.
- Products, exactly which products are covered.
- Minimum purchase / performance targets, and what happens if they are missed (e.g. loss of exclusivity or termination).
- Pricing, the distributor sets its own resale prices (see competition note below); set out the supply price to the distributor and any discounts.
- Intellectual property / trade marks, a licence to use the supplier's marks for resale, with brand controls.
- Term and termination, length, notice, and consequences (sell-off of stock, return of materials).
- Liability, warranties and product compliance, who is responsible for product safety and consumer claims.
- Payment terms, and your statutory rights to interest and compensation on late B2B payments (Late Payment of Commercial Debts (Interest) Act 1998).
The competition-law trap: don't fix resale prices
This is where distribution agreements get businesses into serious trouble. Under the Competition Act 1998, certain restrictions are "hardcore" and prohibited, most importantly resale price maintenance (RPM): a supplier cannot fix or impose minimum resale prices on a distributor (recommended or maximum prices may be acceptable, within limits). Certain absolute territorial restrictions are also problematic.
The good news is the safe harbour: the Vertical Agreements Block Exemption Order 2022 (VABEO) exempts most vertical agreements (like supplier–distributor deals) from the prohibition where each party's market share is below 30% and the agreement contains no hardcore restrictions. Staying within VABEO gives valuable legal certainty, but RPM and hardcore territorial bans fall outside it and risk heavy fines.
Practical tips
- Decide distributor vs agent deliberately, the legal consequences differ.
- Never set minimum resale prices, let the distributor price freely.
- Use VABEO as a checklist: keep market shares and restrictions within the safe harbour.
- Be clear on exclusivity, targets, IP, termination and product liability.
- Take advice on competition law for any restrictions on territory, customers or pricing.
Key takeaways
- A distribution agreement appoints a distributor to buy and resell products (unlike an agent, who sells for the supplier).
- Look for territory/exclusivity, minimum targets, pricing, IP, term/termination, liability and payment terms.
- Competition law is critical: no resale price maintenance or hardcore territorial bans (Competition Act 1998), and use the VABEO safe harbour (market shares below 30%, no hardcore terms).
- Distributors are not protected by the Commercial Agents Regulations 1993, that protection is for agents.
Sources
- Competition Act 1998 (prohibition on anti-competitive agreements; resale price maintenance as a hardcore restriction)
- Vertical Agreements Block Exemption Order 2022 (VABEO), safe harbour for vertical agreements (30% market-share threshold)
- Commercial Agents (Council Directive) Regulations 1993 (applies to agents, not distributors); Late Payment of Commercial Debts (Interest) Act 1998
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.