What are Reseller Agreements?
What are the different types of resale contracts?
What are the essential elements you should know?
In this article, we will break down the legal definition of Reseller Agreements so you know all there is to know about it!
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What Is A Reseller Agreement
A reseller agreement (also known as a reseller contract or resale contract) is a type of agreement where a party authorizes another party to sell its products and services to third parties or end-users.
For instance, a software company can enter into a vendor contract with a reseller authorizing the reseller to sell its software products to end-users.
Resellers agreements can be entered into in any industry so long as there are products and services to sell.
In the software world, the reseller model is quite prevalent.
Reseller Agreement Types
There are different types of reseller agreements that business partners can enter into.
The commercial partners have a good amount of flexibility in drafting and signing the reseller agreement framework that works best for them.
Here are some possible resale agreement types that may be possible:
- Service reseller agreement
- Software reseller agreement
- Exclusive reseller agreement
- Non-exclusive reseller agreement
- Value added reseller agreement
- Master reseller agreement
- Authorized reseller agreement
Although there are different titles to these agreements, fundamentally they are all resale agreements.
The service or software reseller agreements refer to the nature of the product being sold.
The exclusive and non-exclusive reseller agreements refer to the nature of the exclusivity granted to the reseller.
For example, in an exclusive distribution agreement, the reseller will have exclusivity to sell the product or service within designated territory or even worldwide.
The value-added reseller agreement is a type of agreement where the reseller can sell what’s authorized along with additional products and services “adding value” to the total deal.
A master reseller agreement is one where the same framework is used and applied to many different products or entities.
An authorized reseller agreement is to designate a specific vendor as a “qualified” or “authorized” dealer.
Reseller Agreement Format
There are essentially two forms of reseller agreements where the vendor and reseller define how the end-user or customer (being a third party to the vendor) will be legally bound in a contract:
- Top-down reseller agreement
- Bottom-up reseller agreement
Let’s look at each reseller agreement form to understand the differences.
In the case of a top-down agreement, the vendor sets forth the terms and conditions based on which the reseller can enter into a contract with a potential customer.
This type of structure provides the vendor with standardization in the contracts signed by its resellers and is generally useful in cases where there are high-volume transactions.
In the context of a bottom-up resale agreement, the reseller defines the terms and conditions for the sale of the software to the end-user and pushes those terms up to the vendor.
The advantage of this model is that you can transact with sophisticated clients or large corporations that tend to have unique requirements.
On the flip side, a bottom-up approach is much more costly from an administrative point of view for both the reseller and software vendor.
Reseller Agreement Terms
In resellers agreement, you should expect a format where you have provisions relating to the reseller and standard provisions that will generally appear in all contracts.
Here are the reseller terms and conditions generally found in reseller agreements:
- Appointment of the reseller or license grant
- Purchasing procedures
- Provisioning of products and services
- Delivery of products and services
- Acceptance of products and services
- Procedures for the reseller to resell goods or services
- Product or service sale territory
- Changes to orders
- Changes in prices
- Reseller’s responsibilities
- Reseller’s sales target
- Reseller’s commission
- Resale reporting
- Reseller inspection rights
- Intellectual property rights
Here are the general terms and conditions found in a reseller contract:
- Identification of parties
- Effective date
- Payment due dates
- Indemnification clause
- Confidentiality clause
- Non compete clause
- Non solicitation clause
- Force majeure clause
- Dispute resolution
- Limitation of liability clause
- Termination rights
- Term of the contract
Agent vs Independent Contractor
How do you qualify the relationship between a reseller and a vendor?
Do you have an agency relationship or are the parties independent contractors?
This is a fundamental legal question that may impact the legal framework applicable to the parties.
Whether you are looking to sign a complex or simple reseller agreement, you should pay careful attention to this detail.
In a contract of agency or agency relationship, the agent (or the reseller) acts on behalf of the principal.
If your contract is designed in such a way that the reseller is actually your agent, you’ll be responsible for the conduct and actions of the reseller with third parties.
If that’s what you are looking to do, you must ensure that your contract is clear about what the agent is authorized to do and how liability is allocated between the parties.
If the reseller is an independent contract (perhaps more often this is the case), then each business entity deals with one another as independent contractors.
In that case, you must make sure that the risk and rewards are adequately allocated in the contract
With independent contracts, you want to make sure that your contracting partner does not enter into a contract with you to then acquire your list of clients or trade secret information to then circumvent you or act competitively.
No matter the type of reseller agreement you are signing, it’s important to ensure that the terms of the relationship are clear.
Reseller Agreement Example
Let’s look at an example of a reseller agreement framework to better illustrate the concept.
In the software world, many software developers (or publishers) work with resellers to extend their sales capabilities and target markets they would have otherwise been unable to target.
A SaaS reseller agreement is a type of reseller agreement specifically designed to sell software-as-a-service to end-users by the reseller.
This type of agreement can also be called:
- Software distributor agreement
- Software distribution agreement
- Software reseller agreement
This is advantageous as you can have a software developer in North America and with resellers all around the world operating in compliance with the law in various foreign markets.
In the SaaS resale model, the software service provider or vendor grants certain rights to a reseller to sell licenses to the customer or third parties.
So a software developer located in New York can enter into a contract with a reseller or distributor to have its software sold in Europe.
The distributor has the necessary distribution channels in various key countries in Europe, may already have a solid customer base, and can easily add the software developer’s products and services to its own line of products and services when engaging with European clients.
The software developer wins as it can distribute its software products to clients in countries it does not have the capacity to engage with (or speak the client’s language).
The reseller wins as it can sell more to its clients and find new clients interested in the vendor’s software but who may also develop a relationship with the distributor long-term.
So, what is a Reseller Agreement?
What are the different types of resellers agreements?
Let’s look at a summary of our findings.
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