Which software channel agreement do you need?

In this guide, the vendor is the business that owns the software and the partner is the business that helps sell it. We draft six channel agreements: referral partner, reseller, value-added reseller (VAR), SaaS distribution, white-label and OEM (original equipment manufacturer, a business that builds your software into its own product). SaaS stands for software as a service: software you host and customers use over the internet.

Each agreement can be drafted for either side: the vendor appointing a partner, or the partner signing up. Each one starts from what the partner will actually do, not from what the deal is called.

The table compares the seven models. Our guide to each one: referral partner agreements, reseller and SaaS distribution agreements, value-added reseller (VAR) agreements, white-label software agreements, OEM agreements and sales agency agreements.

Three support terms appear in the table. First-line support is the customer’s first point of contact for help. Second-line support is the deeper technical help behind it. Third-line support is fixing the software itself. A sublicence is a licence the partner grants its customer under the partner’s own licence from you.

A distributor of physical goods is a different deal again: see our distribution agreement guide.

Ask these questions in order and stop at the first “yes”:

1. Will the partner sell your hosted platform under its own brand, in its own name, on its own customer contracts? Use a white-label agreement, whether or not it is exclusive.
2. Will it build your software into its own product, supply it only as part of that product and pay you a royalty? Use an OEM agreement, whether or not it is exclusive.
3. Will it resell your hosted service in a territory, or through its own sub-resellers, in its own name and carrying the risk that customers do not pay? Use a SaaS distribution agreement, whether it is exclusive, sole or non-exclusive. A distributor that keeps your customer terms stays here even if it trades under its own brand.
4. Will it only introduce customers to you, and never sell, set prices, sign the deal or collect payment? Use a referral partner agreement.
5. Otherwise the partner resells your product under your brand, and only now does exclusivity decide. If it resells exactly as you supply it, with at most first-line support and no exclusivity, use a reseller agreement. If it is exclusive, or adds its own work (integrating your software, bundling it with hardware, hosting it as a service it runs, or other services), use a value-added reseller (VAR) agreement.

A partner that negotiates, takes orders or collects money for you is a sales agent, which is a different deal again (see below).

Exclusivity is valuable to the partner, so it brings three things with it:

• Targets. The partner commits to a minimum level of sales. In our agreements that minimum is the price of the exclusivity, not a sales duty. Missing it is never a breach; the agreed result, usually, is that the appointment stops being exclusive.
• A price for exclusivity. The agreement records what the partner gives in return, because that is what justifies the restriction.
• Competition Act scrutiny. Exclusivity is a vertical restraint: a limit agreed between businesses at different levels of the supply chain. Under section 5(1) of the Competition Act 89 of 1998, it is usually judged on its effect on competition. Between competitors the rules are stricter. We treat you as competing with the partner if you also sell direct in its territory beyond the customers you name, and our agreements then cut back the terms that could divide the market between you; what each agreement drops is on our competition law page. Our agreements never seal a territory completely, and they record what the partner gives for its exclusivity.

Because exclusivity brings these terms, our plain reseller agreement is always non-exclusive. We put every exclusive reseller on our value-added reseller (VAR) agreement, even one that adds nothing to your product. That is our drafting choice, not a rule of law: the VAR agreement already carries the targets, the price of exclusivity and the competition safeguards.

Exclusivity does not move other models onto the VAR agreement. An exclusive white-label partner, OEM or SaaS distributor stays on its own agreement, which has its own exclusivity terms.

Labels vary between agreements. Our SaaS distribution agreement uses all three terms as defined above. Our VAR agreement’s exclusive appointment shuts out other resellers but keeps your own direct sales, which is the sole form. Whether a VAR can also keep you out of its territory is covered on our VAR page. How the Competition Act treats exclusive territories is on our competition law page.

If you are the reseller asking for exclusivity, expect to commit to targets, and expect a missed target to cost you the exclusivity. If you are the vendor, name your existing direct customers when you sign, so the exclusivity does not reach them.

Each of our channel agreements was drafted and reviewed for one structure. Stretching one to cover a second role leaves gaps: an OEM deal needs a royalty and a right to copy your software into every unit, which a reseller agreement does not give.

The same rule applies inside a model. Our OEM agreement takes one OEM model (a software product, a device or embedded SaaS) and one royalty model. A second model needs a second agreement. Our VAR agreement, by contrast, lists every product the VAR may resell in one schedule, and new products are added by a signed variation.

Use the questions above for each role separately.

A “referral partner” that invoices the customer and collects the money is reselling. A “reseller” that builds your software into its own device is an OEM. A “distributor” that only passes on leads is a referral partner. In each case the deal moves onto the agreement that fits; renaming it is not enough.

The same test sorts the remaining models: see which channel agreement do I need.

No court decision we rely on settles where agency ends and referral or resale begins for software. So we decide it on what the partner actually does. A referral partner under our agreement may attend meetings and explain your product, but it never sets prices, negotiates or signs.

Watch for a reseller that asks to pay you only when its customer pays it. That is asking for agency, not resale: a reseller carries the risk that its customers do not pay.

A software sales agent is drafted as a separate mandate. Our sales agency agreement guide explains how agency works, and our referral partner agreement guide covers introductions.

The Consumer Protection Act 68 of 2008 looks at substance, reading all three parts of its definition together. A franchise agreement must be in writing, signed by the franchisee and contain prescribed information, and the franchisee may cancel it within 10 business days after signing. A channel agreement is not built to meet those rules.

So each of our channel agreements records the facts that keep the deal outside franchise law. The partner pays nothing for the right to trade beyond the price of the product. It runs its own business under its own system. Your approval rights cover only quality and the use of your brand. A fee for the right to trade, or a business system you control, takes the deal off our channel agreements and onto a franchise agreement.

A waiver does not help: the parties cannot agree that the franchise rules will not apply. White-label deals that show your brand, or come with heavy brand guidelines, sit closer to the line, so we read the guidelines before signing.

If you are the partner, our agreements keep your rights intact if the deal is later held to be a franchise. Whether that helps you depends on the facts and on the provision in question.

The Consumer Protection Act can protect a partner as a consumer of what you supply to it: a sole proprietor, or a small company below the Act’s size threshold. Its rules on fixed-term agreements, in section 14, do not apply where both parties are companies or other legal entities. They do apply to an individual partner on a fixed term, who may then cancel on 20 business days’ notice, paying at most a reasonable cancellation penalty.

• Referral partner: a sole proprietor may sign. Our agreement does not take an individual who does not trade as a business; we first check whether that relationship is really employment.
• Reseller: a sole proprietor may resell for its business, and the consumer protections apply where the Act requires them.
• VAR: an individual VAR on a fixed term gets the section 14 protections, and the right to end the agreement for convenience is then the VAR’s alone.
• White-label: our agreement does not take an individual partner. Its 36-month first term, minimum commitment and restraints do not fit section 14, so an individual needs a custom agreement.
• SaaS distribution: an individual or sole-proprietor distributor needs a custom agreement.
• OEM: our agreement does not take an individual or consumer OEM at all.

The Electronic Communications and Transactions Act 25 of 2002 accepts electronic signatures. Where the parties require one but have not agreed on the type, section 13(3) asks whether the method identified the person, showed their approval and was reliable enough. Naming the methods in the agreement avoids that argument. An advanced electronic signature is one that comes from a process accredited under the Act.

The same discipline protects the money. Prices, commission rates and fees sit in a schedule to the agreement. A vendor cannot change them by publishing new programme terms. Apart from any agreed yearly inflation increase, a change is a signed variation. A partner that has invested in selling your product can rely on the numbers it signed.