How To Better Understand an Exclusivity Clause

An Exclusivity Clause is part of a larger legal document and is often overlooked by many who are eager to get started in business. In addition, many don’t take this part of the document as seriously as it should be taken, and don’t truly understand the meaning after signing the legal document.

The legal and basic definition of an Exclusivity Clause is that the signer is totally restricted in selling and/or promoting only the merchandise and/or services provided by the parent company–period. In many cases, you are required to purchase from the parent company, system, product and/or service that you buy into no matter if it is a Business Opportunity, Distributorship or Franchise.

If you later decide that you want to sell for the competition at any point during that agreement the penalties can be harsh. In the best-case scenario, the parent company that you sign up with will simply cancel your agreement and most likely you’ll be stuck with the products that you’ve purchased resulting in some additional fees. In extreme cases, they can sue you and ultimately limit you from buying from other sources, which is especially true of their competitors. Also, they can limit you for a certain period of time even despite after you are no longer working and/or selling for that parent company. Franchise exclusivity clauses can be even more stringent.

You need to negotiate the terms that you’re comfortable with before you sign and know what you are getting yourself into. My advice would be that before you sign anything think of the absolute worst-case scenarios and then assess what your exposure might be. Think positively and begin to work from that point of reference.

 

Carpe Diem My Friends!

SOURCE: West’s Encyclopedia of American Law, edition 2.

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