Entrepreneurs sign a lot of contracts. From starting your business to hiring workers and signing up clients, contracts are everywhere. And while you may be an expert on your business plan, you’re probably not an expert on contract terms–especially the “boiler plate” terms found near the end of most contracts.
While it may be tempting to skip over those boring terms, you really need to read them since they can have contract-wide implications.
Below is an intro to nine of the most common terms.
1. ENTIRE AGREEMENT
When signing a business contract, you usually want that contract (and that contract alone) to govern your deal. Accordingly, this provision will say that “this agreement” controls the deal and that all prior negotiations, documents, etc., are not valid. If you have addendums or other documents that should be binding on the parties, it is usually a good idea to reference them here (or somewhere in the agreement).
This provision usually says that a party may not amend the contract without the other party’s prior written consent. Further, if consent is provided, the amendment must usually be in writing.
A “waiver” occurs when one party breaches the agreement and the other party doesn’t enforce their rights. For example, your client may pay you 35 days late, but you don’t charge them interest (i.e., you are waiving your right to enforce the contract). This provision will say that the waiver is only binding if it is in writing and that one waiver doesn’t mean you will waive future breaches.
A severability provision usually says that if a court rules a certain provision too broad to be enforceable (or unenforceable in its entirety), that the court should reduce the provision to make it enforceable (or in the case of removing an entire provision, the court should still enforce the remainder of the agreement). This is helpful to ensure the entire agreement is not invalidated due to one small issue.
This provision usually says that a party may not assign their rights under the contract (or the contract itself) to a third party without the other party’s written consent. Further, the assignment must usually be in writing. The assignment provision can be mutual or unilateral. If it is unilateral (i.e., only one party can freely assign), then you should consider whether that makes sense for your deal.
Most contracts contemplate various “notices” that must be provided from one party to the other (for example, a termination notice). A notice provision will set out how the notice should be sent (i.e., overnight, via email, etc.), to which address it must be sent, and when it will be deemed delivered. Often, if a party’s address changes, it will be required to update the other parties to the contract.
7. GOVERNING LAW
There are two parts to governing law provisions. First, which state’s laws apply. You may not know this, but a court in Florida can use Alaska law to resolve a dispute (this applies to all states). Thus, stating which state’s law will apply will help the parties to understand their rights up front. The second part is what court the parties must use. This is usually called “jurisdiction” or “venue.” This section requires the parties to use a specific court to resolve their disputes. In this regard, you should be careful not to agree to use a court far away from your place of business.
8. ATTORNEYS’ FEES
In America, the general rule is that the losing party in court does not have to pay the winning party’s attorney’s fees. However, you can include a provision in your contract that requires the losing party to do so. If you are more likely to sue the other side, then you may want to include this. If the other side is more likely to sue you, then you may not want to include this.
9. COUNTERPARTS & SIGNATURES
This provision usually says that if the parties sign different copies of the agreement, they should be treated as though they were just one copy. However, in our modern business world, more and more contracts are being signed using electronic signature platforms like DocuSign and HelloSign. Thus, the counterpart language isn’t as important. However, it is often a good idea to say that the parties may use digital signatures and that digital and photocopies of the agreement should be treated like original paper versions.
LOOKING FOR MORE?
The best way to start a new business and actually succeed is to get help from other professionals. To do that, you can enroll in the Kauffman Foundation’s FastTrac program at www.fasttrac.org for free courses and materials to help you write your business plan and start your business.