What legal aspect must be clearly outlined in distribution contracts?

When crafting distribution contracts, it is essential to clearly outline the geographical territories covered. This specification is crucial because it defines the regions in which the distributor has the right to operate and sell the products, ensuring that both parties understand the boundaries of their business relationship. This area of the contract helps prevent conflicts between distributors, protects market share, and allows companies to strategically manage their sales efforts and inventory in designated regions. It establishes the framework for distribution rights, ensuring that the supplier and distributor have mutual understanding and agreement on the scope of their operations. This clarity helps in avoiding disputes that can arise from overlapping territories or unauthorized sales activities.