Distribution Agreement

A distribution agreement sets the terms on which a manufacturer, brand owner or importer (the supplier) sells products to a business that resells them (the distributor). The distributor buys at a wholesale price, resells at a price it chooses and keeps the margin. The model is common for imported goods, industrial equipment, food and beverage, consumer brands and software resold with services.

There are three main forms:

The labels are not used consistently, so the agreement should spell out who may sell what, where and through which channels. A distribution agreement often sits alongside a supply agreement covering ordering, delivery and warranty mechanics, and it usually includes a limited trademark licence; a broader right to make or adapt the product belongs in a licence agreement. Our guide to the business agreements every Ontario company needs shows where distribution fits among other commercial contracts.

The choice between a distributor and a commission agent drives risk, liability and competition-law treatment.

Pricing is where the difference matters most. Under section 76 of the Competition Act, a supplier that influences upward, or discourages the reduction of, a reseller's price, or refuses to supply a reseller because of its low pricing policy, can face a Competition Tribunal order if the conduct has an adverse effect on competition in a market. Section 76(4) excludes a principal and its agent, so a supplier that genuinely needs to control end prices should use a real agency model, not a distribution agreement labelled agency in name only. An individual who works as a commission agent can also turn out to be an employee; see employee vs. independent contractor.

Most distribution disputes trace back to a handful of clauses:

• Territory and channels. Define the territory by province, map or postal codes, and say whether it covers online sales, marketplaces, public tenders and national accounts. Suppliers usually reserve named key accounts.
• Exclusivity. State whether the supplier may sell directly or appoint others, and whether the distributor may carry competing lines. A ban on competing products meets the Competition Act definition of exclusive dealing.
• Minimum targets. Exclusivity is normally paid for with minimum purchase or sales targets. Many agreements deal with a missed target by converting to non-exclusive rights or shrinking the territory rather than by immediate termination.
• Pricing. Set the wholesale price list, how it can change and payment terms. Under section 76(5), a suggested resale price is treated as proof of price influence unless the supplier also makes clear that the distributor is under no obligation to accept it and will not suffer in its business relations for ignoring it.
• Brand and product. Limit trademark use to the products and territory, require approval of marketing, and allocate labelling, regulatory, recall and warranty duties, backed by an indemnification clause and a liability cap.
• Term and exit. Fix the term, renewal, termination rights and notice periods, inventory buyback and customer transition. If the agreement is silent on term and termination, Ontario courts may imply a requirement of reasonable notice. A post-term non-compete on the distributor must be reasonable in scope and duration to be enforced.

One structural trap: if the distributor must make a payment to the supplier, directly or indirectly, and also receives trademark rights with significant control or assistance, or distribution rights with help securing locations or accounts, the deal can meet the Arthur Wishart Act definition of a franchise and require disclosure; see accidental franchise.

Most distribution agreements raise no competition issue. The ones that can are those in which a significant supplier ties up distributors, products or territories. Four provisions matter:

• Section 77. Exclusive dealing, tied selling and market restriction, meaning a requirement that the distributor resell only in a defined market such as a territory, are reviewable. An order requires a major supplier or a widespread practice and a likely substantial lessening of competition. Under section 77(4)(a), exclusivity or territorial limits used only for a reasonable period to bring a new supplier or new product into a market cannot be the subject of an order.
• Section 76. Price maintenance, described above.
• Section 90.1. Since December 15, 2024, the Competition Act's civil agreements provision can also reach an agreement between non-competitors, including a supplier and its distributor, where a significant purpose of the agreement or any part of it is to prevent or lessen competition in any market. The agreement must still prevent or lessen competition substantially, or be likely to, which is how the Bureau's draft guidelines read the test. Administrative monetary penalties can reach the greater of $10 million ($15 million for each later order) and three times the benefit derived, or 3 per cent of annual worldwide gross revenues if the benefit cannot reasonably be determined.
• Section 45. If the supplier and distributor also compete, an agreement allocating territories or customers can engage the criminal conspiracy offence, subject to its ancillary restraints defence. The Competition Bureau's draft enforcement guidelines of October 2025 say it generally assesses dual-distribution and franchise agreements under the civil provisions, but may still apply section 45 where the parties agree as competitors to fix prices or allocate markets.

The practical change is private enforcement. Since June 20, 2025, a terminated distributor or a rival supplier can seek the Tribunal's leave to bring a section 77 or 90.1 case if it is directly and substantially affected in the whole or part of its business, or if leave is in the public interest. The Tribunal may then order the supplier to pay up to the value of the benefit it derived, shared among the applicant and others affected; the same payment became available on private section 76 applications on that date. Record the business reason for each restriction and keep it no broader or longer than that reason requires. Lamba Law's business agreements team drafts and reviews distribution agreements for suppliers and distributors.

Halden Lighting, an Etobicoke manufacturer of commercial LED fixtures, plans to appoint Teodora Ilieva's Mississauga company as its exclusive Ontario distributor. The draft term sheet offers a three-year term, minimum purchases of $750,000 in year one rising to $1.1 million in year three, a ban on carrying competing fixtures, a $25,000 territory fee, mandatory training and Halden's approval of all marketing, and a minimum resale price 20 per cent above wholesale.

Halden's lawyer makes four changes. The minimum resale price becomes a suggested price list with a written statement that Teodora's company may sell at any price and will not suffer in its dealings with Halden for doing so. The territory fee and mandatory training are dropped and marketing approval is limited to correct use of Halden's trademarks, because a required payment, direct or indirect, combined with significant control or assistance can turn the deal into a franchise. Three national contractor accounts are reserved to Halden, with Teodora's company paid a 5 per cent service fee on deliveries it handles in Ontario. A missed target now converts exclusivity to non-exclusive rights for the following year instead of allowing termination.

The ban on competing fixtures stays. Halden holds about 4 per cent of the Ontario commercial LED market and dozens of other brands remain available to other distributors, so exclusive dealing by a supplier of its size is unlikely to lessen competition substantially. In year two, Teodora's company buys $860,000 against a $900,000 target. Exclusivity lapses for year three, Halden appoints a second distributor for Eastern Ontario, and Teodora's company carries on as a non-exclusive distributor under the same agreement.