Distribution Agreements in Colombia: Types, Key Clauses, and Termination

## Types of distribution agreements

In Colombia, distribution agreements are innominate contracts (they have no specific statutory regulation), but the courts have built up case law that sorts them into these categories:

Commercial distribution The distributor buys products from the supplier and resells them in its own name and at its own risk. It's an independent party — it bears the inventory risk.

Commercial agency (Article 1317 of the Commercial Code) The agent acts on behalf of the principal, promoting deals without taking on its own risk. It's entitled to a commission on the deals it closes.

Commercial concession A mix of distribution and a trademark license. The concessionaire operates under the grantor's standards but buys and resells on its own account.

Why the difference matters: the right to a commercial severance payment

A commercial agent has a special right that a pure distributor does NOT have: commercial severance pay (cesantía comercial, article 1324 of the Commercial Code).

If the principal terminates the agency agreement without just cause, it must pay the agent compensation equal to: - 1/12 of the average annual net profit for each year the contract was in force

This is one of the most significant forms of compensation in Colombian commercial law, and many contracts try to avoid it by labeling the relationship as "distribution" when it's really "agency."

Key clauses in a distribution agreement

Exclusivity and territory Clearly define: - Does the distributor have exclusivity in its territory? - Can the manufacturer sell directly in that territory? - What happens with online sales?

Targets and minimum quotas If the contract requires minimum purchase quotas, they must be realistic and agreed upon by both parties. Impossible-to-meet quotas are a trap used to end the contract without liability.

Intellectual property after the contract ends Can the distributor keep using the trademark after the contract ends? For how long? What happens to inventory still in the warehouse?

Confidentiality and non-compete Post-contractual non-compete clauses are valid in Colombia, but must be reasonable in duration (2 years maximum) and geographic scope.

Termination Clearly define: - Notice periods for ordinary termination - Grounds for immediate termination (serious breach) - Financial consequences of each type of termination

The distributor's rights upon termination

Although a pure distributor doesn't have a right to commercial severance pay, it may be entitled to compensation if: - The supplier terminated without prior notice and the distributor had inventory or specific investments in place - The supplier breached its obligations (lack of support, unilateral price changes) - The termination was arbitrary, under the doctrine of abuse of rights

Are you negotiating a distribution, commercial agency, or concession agreement, or did the manufacturer abruptly terminate your contract? We can review the contract and advise you on your rights.

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