10 Things All Business Owners Should Have in Their Contracts

A well-drafted contract can help you navigate your company and protect it against perhaps otherwise unforeseen liabilities.  Here are 10 provisions you should consider including in all of your business contracts:

1.         Merger Clause.

Merger clauses demonstrate that the contractual agreement you made with another party is “integrated,” meaning that all conditions, promises, and representations are contained within the writing itself.  They can be helpful in preventing litigation by a party who produces outside evidence that contradicts the express promises you made in your written contract document.     

2.         Forum (Choice of Law) Clause.

So-called “forum selection” clauses allow you to choose the jurisdiction and even the law applied for any potential litigation that arises.  For instance, as a California business, you may opt to apply California law in a nearby superior court.  Subject to a reasonableness standard, these clauses can help your business avoid huge litigation costs in faraway jurisdictions.

3.         Alternative Dispute Resolution.

There are different types of alternative dispute resolution, which means a way to resolve the your issues with the other party without engaging in the court system. Mediation, where you work with a neutral third party, generally a retired judge or an experienced attorney, to reach a mutually agreeable decision.  Sometimes no decision is reached because the parties cannot agree.

Arbitration clauses stipulate that your and the other party mutually agree to resolve any disputes through an arbitrator (generally a retired judge, sometimes a panel of retired judges) rather than through normal litigation channels.  After an arbitrator hears both sides, then a decision will be made that can be binding or non-binding, depending on what the parties agreement says. 

4.         Attorneys’ Fees Clause.

Attorneys’ fees clauses allow your company and the other party to decide ahead of time who pays for the attorneys in any litigation that may occur.  For instance, you may agree to a clause that requires the losing party to pay for all attorneys’ fees.  Such a clause could help your company in doing business with another party that is notoriously litigious.  In California, attorneys' fees can only be acquired by contract or statute.  If the claim that you're pursuing in court does not allow you to recover your attorneys' fees on a statutory basis; for example, the other party didn't pay the bill, then you'll have to make a tough decision on whether your attorneys' fees will be too high to make pursuit worthwhile. 

5.         Severability Clause.

Severability clauses essentially allow you to preserve an agreement in the event that a court rules that a part of the contract is unenforceable.  Even if an important provision of your company’s agreement with a vendor is no longer valid, the severability clause states that the rest of your contract is still fully enforceable.   

6.         Non-Waiver Clause.

Non-waiver clauses typically state that your company will not waive its rights or remedies to a contract term even if it is not zealously enforced.  Naturally, such a clause provides your company with greater autonomy and flexibility in contract management, depending on your current circumstances and exigencies.  

7.         Liquidated Damages Clause.

Liquidated damages clauses predetermine the amount of damages to be paid in the event of a contract breach.  Such a provision benefits your company by creating certainty in the potential liabilities of the transaction.  To be enforceable, the clause must specify an amount in damages that was reasonable at the time of your agreement’s execution.        

8.         Indemnification Provision.

Indemnification provisions, when explicitly stated, allow your company to immunize itself from liability for ordinary negligence.  Despite some statutory exceptions, these provisions present a common way for your company to prevent unforeseen costs from litigation.

9.         Headings Clause.

Headings clauses touch upon an aspect of contract formation that is easily overlooked by non-attorneys.  It states that the headings used to label provisions in the actual contract document have no significance for the purpose of contract interpretation.  Almost needless to say, this helps protect your company against undue uncertainty in litigation.

10.       Confidentiality Clause.

Confidential clauses prevent your employees or other parties from disclosing your company’s confidential information, such as trade secrets.  Such provisions are very important in protecting your company’s intellectual property against leaks, whether or not intentional.

If you have any questions or would to speak to a business attorney, contact Elena Rivkin Franz at elena@franzlawfirm.com or (408) 940-5360.