Engaging a distributor in China is a vital step for expanding your business’s reach in a competitive market. However, distribution agreements come with specific legal and operational challenges. This article explores the key legal issues to address when drafting a distribution agreement in China.

1. Defining the Scope of the Relationship - Clearly outline the roles and responsibilities of both parties, including:

• Whether the distributor is exclusive or non-exclusive.
• The territory covered by the agreement.
• Specific product lines or services included in the arrangement.

2. Intellectual Property Protections - To safeguard your intellectual property, include clauses that:

• Restrict the distributor’s use of your trademarks and branding outside the agreed scope.
• Prohibit the distributor from registering your trademarks or similar marks in China.
• Require the return of IP assets upon termination of the agreement.

3. Compliance with Local Laws - Ensure the distributor complies with Chinese laws, including:

• Import and export regulations.
• Anti-bribery and anti-corruption laws.
• Consumer protection standards.Include audit rights to monitor compliance.

4. Payment Terms and Financial Protections - Set clear payment terms, including:

• Currency and method of payment.
• Penalties for late payments.
• Provisions for currency fluctuations if payments are made in foreign currency.

5. Performance Metrics - Define performance expectations, such as:

• Sales targets or quotas.
• Marketing and promotion obligations.Include provisions for renegotiation or termination if the distributor fails to meet these benchmarks.

6. Termination and Transition - Address termination scenarios, including:

• Grounds for termination, such as breach of contract or non-performance.
• Notice periods required for termination.
• Post-termination rights, including the handling of unsold inventory and customer relationships.

7. Dispute Resolution - Choose a dispute resolution mechanism that minimizes risks, such as:

• Arbitration under recognized bodies like CIETAC.
• Governing law that favors your business’s interests.

A robust distribution agreement is essential for minimizing risks and ensuring a successful partnership with a distributor in China. Collaborating with experienced legal counsel can help navigate the complexities and protect your business interests.