Exclusive Distributor Agreements: What You Need to Know If the Business Is Being Sold

An exclusive distributor agreement is one of those contracts that rarely gets much attention — right up until the business that holds it needs to be sold or bought. Then it often becomes decisive: Is the agreement even something a buyer can count on taking over? Can the supplier terminate it just because the ownership changes? And what happens if the supplier itself has breached the exclusivity? This article goes deep into what an exclusive distributor agreement is, and — not least — what you should watch for if you're facing a sale or purchase of a business that depends on one, under Danish law. Want to enter into one yourself? You can download our free template (currently in Danish), which among other things includes an explicit provision for what happens on a change of ownership.

What is an exclusive distributor agreement?

An exclusive distributor agreement is an agreement where a supplier grants one specific distributor exclusive rights to resell the supplier's products within a defined territory or to a defined customer group. The exclusive distributor trades in its own name and for its own account and risk — the distributor buys the products from the supplier and resells them with its own margin, bearing the risk of whether the goods can be sold.

It's this structure that distinguishes an exclusive distributor from a commercial agent, as described below — and confusing the two is one of the most common legal pitfalls in this area. If it's instead your business that buys goods or services from a supplier, it's a supplier agreement you need — the roles are the reverse of an exclusive distributor agreement.

Who are the parties, and how does it differ from an agency agreement?

There are two parties in an exclusive distributor agreement: the supplier (the manufacturer or wholesaler who owns the products) and the exclusive distributor (the independent business given exclusive rights to distribute them).

It's important to keep the exclusive distributor agreement separate from a commercial agency agreement: a commercial agent negotiates sales or enters agreements in the supplier's (the principal's) name and for its account and risk — the agent never owns the goods itself. This relationship is directly regulated by the Danish Commercial Agents Act, which implements an EU directive, and among other things grants the agent a statutory notice period and, under certain conditions, a right to goodwill compensation on termination, generally capped at around one year's average commission.

An exclusive distributor agreement, by contrast, is not directly regulated by the Commercial Agents Act. The starting point is freedom of contract between the parties. Danish courts have in practice applied the Commercial Agents Act's provisions on notice period and goodwill compensation by analogy to exclusive distributors — but only in cases where the partnership, in its nature, resembles an agency relationship closely enough, for example through a high degree of integration into the supplier's sales organization. This doesn't happen automatically, and it's a specific, case-by-case assessment.

Where does the exclusive distributor agreement fit in Danish legislation?

Since the exclusive distributor agreement isn't directly regulated by statute, ordinary Danish contract and obligations law sets the framework — including the principle of "reasonable notice" on termination, based on the duration of the partnership, the degree of dependency, and what investments the exclusive distributor has specifically made in reliance on the agreement.

Exclusive distributor agreements are also subject to EU and Danish competition law. Since June 1, 2022, a revised block exemption regulation for vertical agreements (Regulation 2022/720) has applied, exempting a number of otherwise restrictive terms in this type of agreement — provided neither the supplier nor the exclusive distributor has a market share above 30%, and the agreement doesn't contain so-called hardcore restrictions. The most important hardcore restrictions to know are: binding resale prices, restrictions on effective use of the internet for sales, and attempts to prevent passive sales to customers outside the agreed territory. If an exclusive distributor agreement contains provisions like these, those specific provisions risk being invalid — regardless of what the parties have signed.

Why does this matter when selling a business?

An exclusive distributor agreement can, in practice, be one of the most valuable — or most risky — contracts a business has, precisely because a large share of revenue is often directly tied to it.

Does the agreement automatically transfer on a sale?

It depends on how the sale is carried out:

• In a share purchase (where the buyer takes over the company as a legal entity), the agreement generally continues automatically, because the legal counterparty — the company — doesn't change. But many exclusive distributor agreements contain a "change of control" clause, giving the supplier the right to terminate or renegotiate the agreement specifically if the ownership behind the exclusive distributor changes. A clause like this is one of the first things a buyer should look for during due diligence.
• In an asset purchase (where the buyer only takes over selected assets and agreements), transferring the exclusive distributor agreement to the new owner generally requires the supplier's consent. If the supplier refuses consent, the agreement can simply fall away in the deal.

What can specifically go wrong?

Both seller and buyer should be aware of a number of specific risks:

• Termination on change of ownership: The supplier uses a change of control clause to terminate or renegotiate the agreement on less favorable terms, precisely when the business changes hands.
• Lack of consent: In an asset purchase, the supplier refuses to approve the agreement being transferred to the new owner.
• The supplier itself breaches exclusivity: Through parallel imports, direct online sales to customers in the territory, or by appointing other distributors in breach of the agreement.
• Unmet minimum targets: Many agreements give the supplier the right to terminate if the exclusive distributor doesn't reach agreed minimum purchase or sales targets — a term that's easy to overlook during due diligence.
• Unclear territorial boundaries: Especially with cross-border online sales, it can be unclear what actually falls within "the territory".
• Invalid anti-competitive terms: If the agreement contains binding resale prices or unlawful online sales restrictions, those provisions can be invalid — meaning the exclusivity a buyer thought was legally secured can't actually be enforced.
• Unclear duration: Without clarity on whether the agreement renews automatically or expires at a fixed point, a buyer risks taking over a business whose most important agreement expires shortly after the takeover.

What should you specifically do?

As seller, it's an advantage to have these matters in order before listing the business for sale — an agreement with a long remaining term, clear terms, and no unlawful competition restrictions strengthens both a buyer's confidence and the business's value. As buyer, you should always, as a standard part of your due diligence, get clarity on: whether the agreement contains a change of control clause, whether the supplier's consent is needed for the chosen transfer structure, how much time is actually left on the agreement, and whether the exclusivity is actually being honored by the supplier in practice.

Frequently asked questions

Is an exclusive distributor entitled to compensation if the agreement is terminated?

Not automatically. It requires a specific assessment of whether the partnership, in its nature, has resembled an agency relationship closely enough for the Commercial Agents Act's rules on goodwill compensation to apply by analogy.

Does an exclusive distributor agreement always need approval from competition authorities?

No. Most exclusive distributor agreements fall under the block exemption regulation's automatic exemption, as long as the parties' market shares stay below 30%, and the agreement doesn't contain hardcore restrictions like binding resale prices.

Can I, as buyer, count on automatically taking over an exclusive distributor agreement?

Only if the deal is carried out as a share purchase, and the agreement doesn't contain a change of control clause. In an asset purchase, the supplier's consent is generally required.

Need to enter into an exclusive distributor agreement yourself — or are you preparing a sale or purchase of a business that has one? Download our free template as PDF or Word (currently in Danish), or book a no-obligation call if you'd like sparring.