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”)
- Seller purchases products from vendors. Products are shipped both direct and indirect.
- Seller sells products to Affiliated Buyer in Japan (“AB”) with title transferring when the goods are received at the Japan Distribution Center (“JDC”).
- AB sells products to the Japanese Customers.
- AB pays the distribution right royalty and management services fee to Seller.
II. Documents Required for LRDM
- Business rational;
- Transaction Flow Chart;
- Legal Formalities to support transactions in question, including purchase order (“PO”), invoice, etc; and
- Complete audit trails such as PO, invoice, settlement records, journal entry recordings of purchase.