Dealership Agreement explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A dealership agreement sets out the terms on which a dealer buys a supplier's products and sells them to customers. It is the standard contract for retail and local sales channels. This article gives a specimen between a manufacturing company and a dealer, explains each clause and distinguishes a dealership from a distributorship, a franchise and an agency.
A dealership agreement says what the dealer may sell and where, how long the arrangement lasts, how stock, supply, credit and price work, what each side must do, and how the arrangement ends. In a dealership the dealer buys goods and resells them on its own account, so the contract should say clearly that the dealer is not the supplier's agent and has no authority to bind the supplier. Use a separate agreement if the dealer is meant to act for the supplier.
When you need a dealership agreement
You need one when a manufacturer, distributor or vendor appoints a dealer to sell its products at a location or in an area. The agreement can also govern the relationship between a general dealer and a vendor. Larger manufacturers often add obligations about facilities, the dealer's sales staff and sales reporting. Common sections include the purpose of the agreement, its tenure, the obligations of each side, the procedure for supply and return of goods, promotion and training, invoices and mode of payment, restrictions on either party and termination of the dealership.
If you are a supplier building a sales network or a dealer negotiating terms, our vendor and supplier agreement service can prepare or review the contract. For a related channel, see the distributorship agreement format.
Dealership, distributorship and franchise
- Dealership. A dealer buys products from a supplier or distributor and resells them to the public, usually in a city or locality. The investment is generally lower than for a distributorship.
- Distributorship. A distributor is a wholesaler who buys from the manufacturer and supplies dealers, usually over a wider territory, possibly across States. The distributor trades under its own identity and is a reseller, not a representative of the manufacturer.
- Franchise. A franchisee operates a business using the franchisor's brand, methods and support, subject to strong control, and pays an initial fee and continuing royalty. A distributor or dealer does not ordinarily use the supplier's brand as its own business name.
A dealership is also different from an agency. An agent acts for a principal and represents the principal in dealings with third persons; see section 182 of the Indian Contract Act, 1872 on agent and principal. A dealer who buys and resells is a principal in its own sales.
Specimen dealership agreement
DEALERSHIP AGREEMENT
This Agreement is made on at
BETWEEN
, a company incorporated under the Companies Act, 2013, with registered office at and manufacturing unit at , acting through (the Company)
AND
, , having its main place of business at and branches at (the Dealer).
RECITALS
A. The Company manufactures .
B. The Dealer has its own marketing network and sells goods of several makers, and has proposed to sell the Company's goods at .
C. The Company has considered the proposal and agreed to appoint the Dealer on the terms of this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Appointment. The Company appoints the Dealer as its dealer to sell the products listed in Schedule 1 (the Products) in the territory described in Schedule 2 (the Territory).
2. Principal-to-principal. The Dealer buys the Products from the Company and resells them on its own account. The Dealer is not an agent, partner or employee of the Company and has no authority to bind it or to make any statement or warranty on its behalf beyond the Company's printed warranty.
3. Term. This Agreement begins on and continues for , and may be renewed for further periods of by written agreement on the agreed terms.
4. Orders and supply. The Dealer shall place orders in writing. The Company shall supply the ordered Products within of receipt of each order. If it fails to do so, clause 13 applies.
5. Minimum stock. The Dealer shall hold at least of each Product to meet demand, reviewed every against sales and market trends.
6. Price and resale. The Company shall invoice the Dealer at the price list in force on the date of the order.
7. Credit and interest. Payment is due within of the invoice date. Amounts unpaid after that date bear interest at per annum until payment.
8. Targets. The Dealer shall use reasonable efforts to promote the Products and shall achieve sales of in each . The Company may review performance against sales records.
9. Promotion and support. The Company shall supply publicity material for display at the outlet and for distribution in the Territory. of the agreed cost of maintaining the outlet, up to , credited to the Dealer's account at the end of each .]
10. Trade marks. The Dealer may display the Company's trade marks only to identify the Products, in the manner the Company approves, and shall not use them as part of its own name.
11. Accounts. The parties shall settle accounts every , and the balance shall be paid by the party owing it within .
12. Sub-dealers and staff. The Dealer may appoint sub-dealers, salesmen or agents at its own cost and responsibility, provided that they act in line with this Agreement, and the Dealer is responsible for them.
13. Termination.
(a) The Company may terminate on written notice if the Dealer's sales records show it is not performing its duties.
(b) The Dealer may terminate on written notice if the Company fails to supply ordered Products within the time in clause 4.
(c) Either party may terminate for a material breach not remedied within of written notice.
(d) On termination, the parties shall settle accounts within , and the Dealer shall stop using the Company's trade marks and return its materials.
14. Stock on termination. The Company repurchase the Dealer's unsold stock of the Products at .
15. Liability. Neither party is liable for delay caused by events beyond its reasonable control. except where the law does not permit limitation.]
16. Confidentiality. Each party shall keep the other's confidential information confidential during and after this Agreement.
17. Notices. Notices shall be in writing and delivered to the addresses above or any other address notified in writing.
18. Disputes and governing law. This Agreement is governed by the laws of India. Disputes shall be referred to ].
19. Entire agreement. This Agreement is the entire agreement between the parties on the Dealership and may be changed only in writing signed by both.
IN WITNESS WHEREOF the parties have signed this Agreement on the date first written above.
For
For
Witnesses:
1.
2.
SCHEDULE 1: PRODUCTS
SCHEDULE 2: TERRITORYClause-by-clause explanation
| Clause | What it does | Drafting tip |
|---|---|---|
| 1 Appointment | Names products and territory, exclusive or not | Define the territory by map, pin codes or districts |
| 2 Principal-to-principal | Denies agency | Match it to how the dealer actually trades |
| 3 Term | Fixes the period and renewal | Say whether renewal is automatic or by agreement |
| 4 Orders and supply | Sets how goods are ordered and supplied | Give a delivery period and a consequence |
| 5 Minimum stock | Keeps product available | Review it periodically |
| 6 Price and resale | Price list and any resale price cap | Check that any resale-price term is lawful for your product |
| 7 Credit | Credit period and interest | State the day interest starts |
| 8 Targets | Performance expectation | Tie termination rights to measured sales |
| 9 Promotion | Marketing support and cost sharing | Cap any contribution |
| 10 Trade marks | Limited right to display | Do not allow use in the dealer's own name |
| 11 Accounts | Periodic reconciliation | Fix intervals and payment time |
| 12 Sub-dealers | Allows appointments | Make the dealer responsible for them |
| 13 and 14 Termination and stock | Exit and stock buy-back | State the notice and buy-back price |
| 15 Liability | Force majeure and limits | Be realistic about caps |
| 18 Disputes | Forum and law | Align with other contracts |
The law behind it
A dealership agreement is a contract under the Indian Contract Act, 1872, and the general principles in our article on essential elements of contract drafting apply. If you use a standard form across many dealers, follow the usual clauses and avoid the common pitfalls explained in usual clauses in commercial agreements, and compare with the vendor agreement key clauses. Terms on resale price, exclusivity and non-compete may be affected by competition law and other laws; check them for your sector. Because a dealer is a principal and not an agent, section 182 on agency does not govern the relationship, but statements by the dealer's staff can still create risk, so the agreement should deal with authority.
Stamp duty, registration and execution
A dealership agreement is chargeable as an agreement or contract under the Stamp Act and Schedule of the State where it is executed; see our overview of stamp duty on contracts and the State-wise overview. No amount is quoted here. It is not ordinarily registered. Execution: the company signs through an authorised officer, a firm signs through its partners, a company dealer through an authorised signatory, witnesses attest, and each side keeps an original.
Common mistakes
- Failing to say the arrangement is principal-to-principal.
- A territory defined loosely, so overlapping dealers arise.
- No minimum stock or target, or targets with no consequence.
- Credit and interest terms left vague.
- Termination without a notice period or accounts settlement.
- No treatment of unsold stock on exit.
- Allowing the dealer to use the supplier's trade mark as its own name.
- Copying a distributorship or franchise form for a dealer.
Need help with a dealership agreement?
A dealership agreement works when territory, supply, price, targets and exit are each written plainly. Our vendor and supplier agreement team drafts and reviews dealer and channel contracts for suppliers and for dealers.
Key takeaways
- A dealership agreement governs the sale of a supplier's products by a dealer on its own account.
- State the territory, exclusivity, term, supply, price, credit, targets and termination.
- Say it is principal-to-principal and that the dealer is not an agent.
- Distinguish it from distributorship and franchise.
- State law fixes stamp duty; no amount is quoted.
Read next
- Distributorship agreement format
- Employment renewal agreement format
- Vendor agreement: key clauses
- Usual clauses in commercial agreements
Disclaimer: This specimen is a general model for information. Every document must be adapted to its facts and to the law, rules and forms in force when it is signed or filed; stamp duty, registration and court fees depend on the State and the forum. This article is general information, not legal advice; check the official text before acting.