Limited Risk Distributor Model

To facilitate supply chains and satisfy customers’ needs Multi-National Corporations (“MNC”) establish the Limited Risk Distributor Model (“LRDM”) which enables MNC to create a structure that is more flexible and easily adaptable to MNC’s rapidly changing business needs and to achieve multiple objecives such as;

  • to accommodate MNC’s international business expansion and fulfill customer’s needs in a timely manner;
  • to improve its supply chain efficiencies and reduce certain operational costs, such as those associated with excess inventory;
  • to align its legal/operational structure in line with the expansion of its international operations; and
  • to increase organizational flexibility and adaptability for rapidly changing industry and business models.

I. Transaction Flow of  Limited Risk Distributor Model (“LRDM”)

  1. Seller purchases products from vendors. Products are shipped both direct and indirect.
  2. Seller sells products to Affiliated Buyer in Japan (“AB”) with title transferring when the goods are received at the Japan Distribution Center (“JDC”).
  3. AB sells products to the Japanese Customers.
  4. AB pays the distribution right royalty and management services fee to Seller.

II. Documents Required for LRDM 

  1. Business rational;
  2. Transaction Flow Chart;
  3. Legal Formalities to support transactions in question, including purchase order (“PO”), invoice, etc; and
  4. Complete audit trails such as PO, invoice, settlement records, journal entry recordings of purchase.