The fastest way into a foreign market is usually through someone already there — a distributor who buys and resells your product, or an agent who solicits orders on commission. It is also the fastest way into a relationship that local law makes surprisingly hard to leave. Before a California company signs, it should understand what the agreement must cover and which local rules will apply no matter what the contract says.
Distributor or agent: the distinction drives everything
A distributor buys goods for its own account and resells them, earning a margin and bearing inventory and credit risk. An agent solicits orders in your name for a commission; you sell directly to the end customer. The choice determines who bears credit risk, who sets resale prices, who faces the customer on warranties, and — critically — which body of local protective law applies. Many countries regulate commercial agents far more heavily than distributors, though some extend protections to both. It also has tax consequences: an agent with authority to conclude contracts can create a taxable "permanent establishment" for you in the foreign country. Pick the structure first; the drafting follows from it.
Local law can override your termination clause
The biggest surprise for U.S. companies is that many jurisdictions grant intermediaries statutory rights on termination that a contract cannot waive. In the European Union, the Commercial Agents Directive generally entitles qualifying agents to an indemnity or compensation when the relationship ends — even after a lawful, contract-compliant termination — subject to statutory exceptions. The indemnity model is capped at one year's average annual remuneration, while compensation under the alternative model is not capped by the Directive. Several Latin American and Middle Eastern countries have protective dealer statutes with similar effect, and some require registration of the relationship or restrict termination without locally recognized cause. A California choice-of-law clause does not reliably displace these rules, because local courts treat them as mandatory. The consequence: model the exit cost under local law before you appoint anyone, and get local-law input on the termination provisions rather than assuming your template travels.
The commercial core: territory, exclusivity, and performance
Most disputes trace back to three interlocking terms:
- Territory and channel. Define the geography, the customer segments, and whether online sales count. Reserve named house accounts and direct sales expressly if you want them.
- Exclusivity. If the distributor gets exclusivity, make it conditional — tied to minimum purchase targets, with a stated consequence (conversion to non-exclusive, or termination) if targets are missed. Exclusivity without performance conditions is a market you have given away.
- Term and renewal. Prefer a fixed initial term with renewal by mutual agreement over an evergreen contract, which in protective jurisdictions grows harder to end the longer it runs.
Add the operational spine: ordering and forecast mechanics, pricing and price-change rights, payment terms and security (a standby letter of credit is common), warranty pass-through, and marketing obligations.
Protect the intangibles: IP and the customer base
Register your trademarks in the territory in your own name before appointment — in first-to-file countries, an unregistered brand can be registered by the distributor itself, and buying your own mark back is an expensive lesson. License the marks narrowly for the term, require assignment of any local registrations or domain names on exit, and state the parties' rights regarding customer data and goodwill, subject to applicable law. Sell-off provisions for remaining inventory, at defined prices and duration, prevent a terminated distributor from dumping product against your new channel.
Compliance is not optional abroad
Your intermediary's conduct can become your legal problem. A U.S. company can face liability under the Foreign Corrupt Practices Act for corrupt payments made through agents or distributors when it authorizes the payments or has the requisite knowledge, so include anti-corruption representations, audit rights, and termination rights for violations. Layer in export controls and sanctions screening obligations, and in the EU, keep resale price maintenance out of distributor pricing terms — recommending resale prices is generally acceptable; dictating them is not. Dispute resolution deserves equal care: arbitration with a neutral seat is usually easier to enforce against a foreign counterparty than a U.S. court judgment, a recurring theme in international business planning.
Structure the exit at the start
Every appointment should be drafted as if termination is certain, because eventually it is — by success (you acquire the distributor or go direct), by failure, or by strategy change. Notice periods that satisfy local law, post-termination commission rules for agents, inventory repurchase mechanics, transition cooperation, and a clean IP hand-back turn the end of the relationship into an administrative event instead of litigation. These are drafting choices that belong in the original agreement, not the exit negotiation.
Talk to a California business attorney
If you are appointing a distributor or agent abroad — or trying to end a relationship that local law protects — get the structure and exit costs mapped before you commit. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
