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Nature of distribution

A distributor buys goods or services from a manufacturer or wholesaler and resells them on its own behalf. Distribution arrangements are commonly used where a manufacturer needs assistance in bringing products to a particular market (eg in an overseas territory with which it is not sufficiently connected or familiar) or where a distribution arrangement is preferable to an agency channel or to an internal sales and marketing team. The arrangements are long term, with additional incentives to the distributor to develop the sales of the relevant goods (or services) in exchange for a reduced wholesale price, otherwise the distributor would deal on standard terms with the manufacturer or its wholesaler.

Although distribution arrangements can be for goods or services or both, for simplicity in this section on distribution, the Practice Notes and Precedents describe distribution arrangements for goods. For an introduction to distribution arrangements, see Practice Note: Nature and types of distributorship. For details about distributors' relationships with third parties, see Practice Note: Distributor and third party relationships.

Distribution compared to agency

Distribution has certain features in common with agency, but the legal structure