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A consignment agreement is a legal agreement between two parties, the cosignee and the cosignor. This agreement is typically used as an agreement for the transfer, sale, re-sale, or storage of a product or commodity. This form may be used in conjunction with a distribution agreement.
A consignment agreement could be used for an online store or a physical location. The document will require you to list a specific description of what will happen to any goods that remain unsold after a certain period of time. Typically, the good will be returned to the seller.
The prices of various items may need to be included. The payment specifics will also be needed, including how much of the selling price each party will get. Tax information can be included on this document as required from state to state. Before this form is complicated, it must be signed.
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Contents of a Consignment Agreement
A consignment agreement is the agreement made when one party provides merchandise that another party "consigns" and distributes. If you're familiar with consignment clothing stores, it's the same basic idea. It's two parties benefitting from a single asset.
So how do consignment agreements work? To make it legal, every agreement needs a consignment agreement form. If you're fleshing out your business model and you plan on working with other companies, take our advice and have a consignment agreement template in place before you start. It's always easier (and more professional) to have a standard approach set up. You can always download a consignment agreement template from the internet. However, it's perfectly easy to draw one up from scratch. To make this simple, we've listed the basic components of a consignment agreement below.
Information About Involved Parties
This is pretty basic. It includes names and contact information for each involved entity, and specify which is the "principal" (the party providing the merchandise) and which is the "consignee" (the person receiving and distributing it).
Recitals
This is the part where each party's role in the agreement. It should establish a few basic tenets, such as -
who or what (sort of business, etc.) the principal party is
what the principal is hoping to gain by way of the consignment agreement
formal responsibilities of the consignee to the principal as determined by the agreement
Exclusive Appointment
This section should state the consignee's exclusive rights to the distribution of designated materials.
Details of Merchandise Handling
This can actually be divided into several sections, and should cover the rules of how and when the merchandise will be delivered, who is responsible for which fees and liabilities (for example, the principal may pay all shipping and handling dues but the consignee is responsible for any damage incurred to the merchandise), the rules of selling the merchandise (for example, all sales prices are determined by the principal and are only payable to the consignee in cash), and a statement determining to whom the title of unsold merchandise belongs (usually the principal).
Details of Employee Benefit Payments
This section should cover which party (generally the consignee) is responsible for supporting and directing employees involved in selling said merchandise. Basically, this relieves the principal from liabilities involved in the selling and distribution of the merchandise.
Enforcement Details
This should form the final series of subsections, and should include details of termination terms , dispute arbitration, the governing law of the agreement and rules for modifying the agreement. The rules in these sections vary wildly and you must tailor them as you see fit.