Distribution Agreements in the Philippines: A Guide for Foreign Suppliers

A foreign supplier may appoint a Philippine distributor through a distribution agreement — a contract where the Philippine entity buys and resells the supplier's products in its own name. Philippine law does not require a special government license for a foreign supplier to enter into such an agreement. The distributor is a juridical person organized under Philippine law, typically a corporation or partnership, and the relationship is governed primarily by the contract, the Civil Code, and — for consumer products — the Consumer Act of the Philippines. The most important step is to define the distributor's status clearly: a distributor buys and resells, while an agent merely facilitates sales for the supplier.

Who Is a Distributor Under Philippine Law?

The Consumer Act of the Philippines defines a distributor as any person to whom a consumer product is delivered or sold for purposes of distribution in commerce, excluding the manufacturer or retailer of the product.

This definition matters because it fixes the distributor's legal position: it takes ownership of the goods and resells them. A distributor is not the supplier's employee or agent. It buys at a price, sells at its own price, and carries its own business risk.

A foreign supplier that sells to a Philippine distributor is generally exporting to the Philippines. The distributor, as a Philippine entity, handles importation, customs, and local regulatory compliance.

How Does a Foreign Supplier Appoint a Philippine Distributor?

There is no single government approval required solely to sign a distribution agreement. The practical path is:

1. Choose the counterparty. Verify that the Philippine distributor is a duly registered corporation or partnership with juridical personality. Under the Civil Code, private corporations are regulated by laws of general application, and a corporation has a personality separate and distinct from its shareholders.
2. Confirm the distributor's authority. Check the Securities and Exchange Commission registration and the board resolution authorizing the signatory.
3. Draft the agreement. Set out the appointment, territory, products, pricing, term, and termination.
4. Address regulatory requirements. If the products are consumer goods, cosmetics, drugs, devices, or hazardous substances, the distributor must comply with the Consumer Act and applicable rules on labeling, packaging, and product safety.
5. Register intellectual property. If the supplier's trademark is licensed or used locally, the appropriate trademark or license arrangements should be recorded.

What Should the Distribution Agreement Cover?

A well-drafted distribution agreement typically addresses:

• Appointment and scope. Whether the appointment is exclusive or non-exclusive, and the defined territory.
• Products. The specific goods covered, and how new products are added.
• Orders and pricing. How the distributor places orders, payment terms, and currency.
• Term and renewal. The duration and the conditions for extension.
• Termination. Grounds for termination, notice periods, and post-termination obligations.
• Intellectual property. Use of the supplier's trademarks and restrictions on registration by the distributor.
• Confidentiality and non-compete. Protection of trade secrets and limits on competing lines.
• Governing law and dispute resolution. Whether Philippine law governs and whether disputes go to arbitration or the courts.

Does the Consumer Act Apply?

Yes, if the products are consumer products — goods primarily for personal, family, household, or agricultural purposes. The Consumer Act declares it State policy to protect consumers, and it is to be interpreted in the best interest of the consumer.

Under the Act, a seller includes a supplier or distributor in certain cases, such as when the seller is a subsidiary or affiliate of the supplier, when they share personnel or officers, or when the supplier exercises supervision, direction, or control over the seller's selling practices. A foreign supplier that closely controls a Philippine distributor's selling practices may therefore be treated as a seller for consumer-protection purposes.

The Act also prohibits deceptive, unfair, and unconscionable sales acts and practices, and requires adequate information and labeling for consumer products.

Frequently asked questions

Can a foreign supplier sell directly in the Philippines without a distributor? A foreign supplier may sell directly, but it must comply with Philippine registration, tax, and regulatory requirements. Many suppliers prefer appointing a local distributor to handle importation and compliance.

Is a distribution agreement the same as an agency agreement? No. A distributor buys and resells products in its own name and bears its own risk. An agent represents the supplier and does not take ownership of the goods. The distinction affects liability and termination.

Does the agreement need to be notarized? Notarization is not generally required for validity, but a written, signed contract is strongly advisable. If the document is to be used as a public instrument or registered, notarization or authentication may be required.

Practical takeaways

• A foreign supplier may appoint a Philippine distributor without a special government license; the distributor is a separate Philippine juridical entity.
• Define clearly whether the distributor buys and resells or acts as an agent — the legal consequences differ.
• If the products are consumer goods, the Consumer Act applies, including its rules on labeling, safety, and fair selling practices.
• Include express terms on exclusivity, territory, pricing, termination, intellectual property, and dispute resolution.
• Verify the distributor's corporate registration and the authority of its signatories before signing.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

• REPUBLIC ACT NO. 386 - AN ACT TO ORDAIN AND INSTITUTE THE CIVIL CODE OF THE PHILIPPINES

• REPUBLIC ACT NO. 7394 - THE CONSUMER ACT OF THE PHILIPPINES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.