Once a company confidently selects a representative that will, to a limited extent, independently represent the organization, the company must then focus the representative’s actions to a particular area.
A company must understand the contractual boundaries and obligations. A representative may only conduct business on the company’s behalf in the area defined in the agency or distributor contract. This includes a representative’s negotiations and goods’ sale and distribution.
A company may impose restrictions on the representative to ensure compliance, such as territorial exclusivity, territorial restrictions, and noncompeting obligations.
- Territorial exclusivity:One benefit of a distributor agreement is the territorial exclusivity clause. This clause forbids the manufacturer to find a new distributor to compete with the first in the prescribed territory.
Normally, this territory is restricted to a certain state or country. If you would like to expand the territory of the principal contract through a representative and are interested in locating newbusiness opportunities nearby, then it may be more beneficial to generate new contracts, adding other regions to the agreement, than to limit the company’s range of action. .
For example, the distributor could be granted exclusive rights to sell a new suntan lotion in Brazil. Under a distributor contract, the company cannot locate other representatives capable of generating sales in the same country.
- Territorial restrictions:
Territorial restrictions forbid the distributor from expanding its operations outside of the contract signed with the manufacturer.The distributor cannot sell goods outside the territorial scope defined by the manufacturer. Using the suntan lotion example, if the intended territory was appointed in Brazil, the distributor cannot export the product to Argentina because that territory exceeds the agreed-upon development area with the manufacturer. However, the distributor could sell the goods to a third party in Brazil, and not be held liable for exporting goods by stealthily circumventing the agreement. because the distributor can prove that the goods were delivered to a local address.
- Noncompeting obligations:
This clause demands a representative’s exclusivity, meaning that the agent or distributor cannot offer clients goods similar to those produced by the manufacturer. In other words, the representative cannot represent products that directly compete with and meet the same consumer needs as the manufacturer’s goods.
For example, the distributor cannot represent another suntan lotion brand in Brazil. However, unless otherwise stated in the original distributor contract, the representative could sign a different distributor agreement, representing suntan lotion outside Brazil.
Reference: Legal > Agency Contracts, Distributor Contracts, and Technology