Typically, a group of companies will establish a distributor with limited risks to distribute the goods that the group of businesses manufactures.
The group can decide on the pricing at which the Limited Risk Distributor buys and sells.
The material difference between an agent or Commissionaire Distributor and the Limited Risk Distributor is that the LRD takes the title of the product, which leads to more significant functions and risks compared with an agent.
Even though the Limited Risk Distributor now owns the goods that were traded, a fully-fledged entity is responsible for most of the strategic business risks.
The primary responsibilities and risks are shouldered by a fully-fledged entity that is part of a group. Limited Risk Distributor acts as a middleman by purchasing goods and then passing them on to clients on his behalf and for his account.
Typical risks a Limited Risk Distributor bears under the agreement with a fully-fledged entity are inventory, trade receivables and currency risks (e.g. obsolete stocks are repurchased and debts are offset).
The Limited Risk Distributor is responsible for performing standard sales and marketing duties.
These responsibilities include the formulation of marketing plans, sales forecasts, and the maintenance of customer connections.
Sales are recorded on the books of the LRD, as well as the cost of goods sold.
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