A distribution agreement shapes how your product reaches customers, so it pays to get it right before the first shipment. Whether you are a startup looking for a distributor or a business planning to resell goods, your distribution agreement in Australia should deal with more than price and territory. It also raises competition law, consumer law and franchising issues that catch many businesses by surprise. Allied Legal advises startups on these deals, and distribution arrangements raise both legal and sales questions. This guide covers the key issues to negotiate.
What Is a Distribution Agreement?
In a distribution arrangement, a distributor buys goods from a principal and resells them. The principal is usually the manufacturer or importer. If you have a product that needs to reach a wider market, you will look for distributors. If you want to be a distributor, you need to know exactly what you are signing up to.
A strong distribution deal can drive growth for both sides. In our experience, a collaborative approach to negotiation usually produces the best result.
Does a Distribution Agreement Have to Be in Writing?
No general law requires a distribution agreement to be in writing. But you should always put one in place. Goodwill is high at the start of a commercial relationship, so parties often assume a handshake or an exchange of emails will do. Relationships can sour, and unclear terms are a common source of costly disputes. A written agreement gives both sides certainty about their rights and obligations.
Key Issues to Negotiate
Agree the following points before you finalise the deal, and set them out clearly in the agreement.
Scope, Territory and Term
Decide whether the arrangement is exclusive. If it is, set out what happens if a party breaches exclusivity. Define the territory, identify the products precisely, and say whether the principal can change the product. State how long the arrangement runs, how either side can renew it and how either side can end it.
Price, Payment and Costs
Set out who pays for the product and when. Decide whether the principal will offer the distributor credit, and agree the amount and timing of payments. Say who organises and pays for transport. Settle whether the parties will share promotional costs. Your pricing approach must also respect competition law, which we cover below.
Performance and Promotion
Many agreements include key performance indicators (KPIs), such as minimum sales targets. If you set them, say what happens if the distributor misses them. Agree whether the principal must promote the product and whether it will train the distributor. A principal should also ask the distributor to promise not to bypass the arrangement, for example by dealing directly with the principalās customers.
Faulty Goods, Returns and After-Sales Service
Agree how returns work and who bears the cost. Agree a framework for after-sales service. Faulty goods raise consumer law issues. Australian Consumer Law guarantees apply to goods sold to consumers, and a business cannot contract out of them. Manufacturers, which include importers in some cases, can be liable to consumers directly. A supplier who fixes a problem can often claim the cost back from the manufacturer. The ACCC explains when manufacturers must reimburse suppliers. Our consumer law team can advise on these duties.
Intellectual Property, Disputes and Termination
Protect the principalās intellectual property. If the distributor will use the principalās brand, the agreement should set out how and under whose control. Our guide to copyright and trade marks explains the basics. Finally, agree how the parties will resolve disputes. If a relationship breaks down, our page on distribution agreement disputes explains your options.
Competition Law Traps
Resale Price Maintenance
A principal cannot require a distributor to sell at or above a minimum price. The Competition and Consumer Act 2010 (Cth) bans resale price maintenance, whatever its effect on competition. A principal can still recommend a price or set a maximum price. The ACCC explains the rules on minimum resale prices. Pricing claims to customers must also not be false or misleading under the Australian Consumer Law.
Exclusive Dealing
Granting a distributor an exclusive territory can count as exclusive dealing. It is illegal only if it substantially lessens competition. The risk rises when no alternative product exists or the business has real market power. Read the ACCCās guidance on exclusive dealing. Competition penalties for companies increased sharply in March 2026, so take advice before you impose restrictions.
Unfair Contract Terms
Small businesses also have protection against unfair terms in standard form contracts. A distributor with fewer than 100 employees or turnover under $10 million may qualify. If you offer your distribution agreement on a take-it-or-leave-it basis, a court could strike down unfair terms and impose penalties.
Are You Triggering a Franchise?
Australia regulates franchising closely, and a failure to comply has serious consequences. An agreement can be a franchise even if the parties never intended one and even if the document says ādistribution agreementā. The law looks at substance, not the label.
Under the Franchising Code, an agreement is a franchise when it has three features. The principal grants the right to supply or distribute goods or services under a system or marketing plan that the principal substantially determines, controls or suggests. The principalās trade mark or brand features substantially or materially in the distributorās business. And the distributor must pay, or agree to pay, the principal an amount before starting or continuing.
The Code generally disregards payments for goods supplied on a genuine wholesale basis. A distributor that only buys stock at a genuine wholesale price will usually not meet the payment feature. But a sign-on fee, a training fee or a royalty is a warning sign. Strict marketing plans, controlled marketing funds and trade mark licences make the risk higher. Our franchising lawyers can assess your arrangement before you sign. Our guide to resolving franchise disputes shows what is at stake.
Frequently Asked Questions
1. What should a distribution agreement include?
It should cover exclusivity, territory, products, price and payment terms, credit, transport, sales targets, promotion, term and termination, returns and faulty goods, intellectual property and dispute resolution. It should also address competition law and franchising risk.
2. Does a distribution agreement have to be in writing?
No general law requires it, but a written agreement is strongly advisable. It gives both sides certainty and evidence of what they agreed.
3. Can a principal set the price a distributor sells at?
A principal can recommend a price or set a maximum price. It cannot require a minimum resale price, because competition law bans resale price maintenance.
4. Can a distribution agreement be a franchise agreement?
Yes. If the arrangement has the features of a franchise under the Franchising Code, it can be a franchise even if the parties call it a distribution agreement. The key features are a system the principal controls, a link to the principalās brand and a payment to the principal.
5. Is an exclusive distribution agreement legal?
Usually yes. Exclusive dealing is illegal only if it substantially lessens competition. The risk rises when the product has no real alternative or the principal has significant market power.
6. Who is liable if a distributed product is faulty?
Consumer guarantees under the Australian Consumer Law apply to the supplier and, in many cases, the manufacturer. The agreement should set out how returns, repairs and costs work between the principal and the distributor.
Allied Legal prepares and negotiates distribution agreements for Australian startups. We check your terms against competition, consumer and franchising law, and we also support the commercial side with startup sales advice. Read our guide to a startup sales plan to see how it fits. Call us on 03 8691 3111 or email hello@alliedlegal.com.au.
This article is provided for general information only and does not constitute legal advice. You should obtain legal advice specific to your circumstances before acting on any information contained in this article.
