Contracts: 15 Legal Clauses You Should Know About (Mini-Series, Part 3 of 5)
Post #58: Understand legalese in common agreements for better understanding.
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Did you know…?
📌 90% of professionals find contracts either difficult or downright impossible to understand. (source)
Welcome to Day 3 of my Contracts 101 mini-series for freelancers, consultants, and small business owners.
If the word “contract” makes you feel overwhelmed — or like it’s something only lawyers and big companies need — you’re in the right place.
This series is designed to remove the fear and formality from contracts.
Contracts are about clarity, protection, and professionalism, and you deserve all three (even if you’re just getting started).
👉 Also, be sure to check out these resources:
Bootstrap Your Business Workflow - a step-by-step guide with the links to all of the top daily posts that walk you through the process from scratch
BYB Book Recommendations - a collection of the best business books to help you on your entrepreneurial journey
BYB Alerts & News - urgent updates for self-employed and business owners - delivered to your inbox - so that you can be more prepared
BYB Documents - a repository of guidance for important business documents with instructions and guides to use them in your self-employment journey
📌 Caveat Emptor
As a business owner, I have had a lot of exposure to business-related contracts, and have learned many lessons along the way (too often by way of hindsight).
However, please keep in mind as you review this newsletter that:
I’m NOT an attorney, arbitrator, or mediator, and I have no formal legal education.
This is NOT meant to serve as legal advice or legal guidance.
I am only sharing my experience — your circumstances and needs may differ.
This newsletter is based entirely upon my experience and research as an entrepreneur.
If you are seeking guidance with any contract-related or legal decision, I encourage you to talk with a legal expert, or contact an arbitration and/or mediation service provider in your area for guidance with your unique situation.
About Contract Clauses
You’ve got the contract type down, but the real power is in the fine print.
Whether you're a freelancer, consultant, or small business owner, you need to understand the key clauses in your contracts to protect your business.
You can’t just focus on the basics; it’s the details that really matter.
Contract clauses can make or break a deal. You should know what they mean and how they impact your business before you sign anything.
💡 Tip: this is not a comprehensive list of possible clauses you might need to know about, but offers a baseline so that you can do your own research or at least ask better questions when you talk with your attorney.
Top 15 Clauses You Should Know About
Click on any of these links to jump to the clause that you want to learn more about, or just continue scrolling to view them all.
(1) Amendments
How to Change the Contract After It’s Signed
About: An Amendments clause defines how changes or modifications to the contract can be made after both parties have signed it. This typically requires written consent from both parties.
Why it Matters: Businesses evolve, and contracts may need to be updated. The amendments clause ensures that any changes are documented and agreed upon by both parties, preventing one party from making unilateral changes.
Example Clause: “This agreement may only be amended or modified by a written document signed by both parties.”
Tips: It’s important to have a clear process for making changes. This prevents confusion and ensures that any updates to the agreement are formally agreed upon.
(2) Assignment and Subcontracting
Can the Contract Be Transferred or Outsourced?
About: This clause defines whether or not the parties are allowed to assign or subcontract the agreement to third parties. It may limit or allow subcontracting based on the nature of the work.
Why it Matters: This clause protects against one party passing off the contract to a third party that may not meet the original standards or may not fulfill the obligations as intended. It can also address whether you can delegate tasks to others if needed.
Example Clause: “The Contractor shall not assign or subcontract any part of this agreement without the prior written consent of the Client.”
Tips: If you're hiring subcontractors or delegating work, make sure the contract allows for this. On the flip side, if you want to prevent someone from assigning their obligations to someone else, make sure that the clause restricts such actions.
(3) Compliance with Laws
Ensuring Legal Adherence
About: The Compliance with Laws clause stipulates that both parties agree to comply with all applicable laws, regulations, and industry standards while fulfilling the terms of the contract.
Why it Matters: As a business owner, it’s essential to ensure that the work you're doing complies with all relevant legal requirements — whether they pertain to local, state, or federal laws. This clause helps protect both parties from legal troubles due to non-compliance.
Example Clause: “Both parties agree to comply with all applicable laws, regulations, and industry standards while performing under this agreement.”
Tips: Make sure the clause is broad enough to encompass all relevant legal requirements that may apply to your specific business or industry. This is especially important for regulated industries like healthcare, construction, or finance.
(4) Confidentiality / Non-Disclosure
Protecting Sensitive Information
About: A Confidentiality or Non-Disclosure Agreement (NDA) clause ensures that any sensitive or proprietary information shared between parties is kept confidential and not disclosed to others.
Why it Matters: If you’re sharing trade secrets, business plans, or any sensitive information, a confidentiality clause is crucial to protecting your intellectual property and maintaining your competitive advantage.
Example Clause: “The Contractor agrees not to disclose or use any confidential information shared by the Client during the term of this agreement and for a period of 2 years following its termination.”
Tips: Make sure the terms of confidentiality are clear and specify the time frame during which the information must remain confidential. You might also want to include exceptions for disclosures required by law or as part of business operations.
(5) Dispute Resolution
Avoiding Court with Mediation or Arbitration
About: Dispute Resolution clauses dictate how conflicts will be resolved if they arise. Instead of going straight to court, these clauses often specify mediation or arbitration as the preferred methods.
Why it Matters: Litigation can be time-consuming and expensive. Mediation or arbitration offer faster, more affordable alternatives to resolve disagreements. This clause helps you avoid lengthy legal battles and focus on your business.
Example Clause: “In the event of a dispute, both parties agree to first attempt mediation before resorting to arbitration. If mediation is unsuccessful, the dispute will be resolved through binding arbitration.”
Tips: Mediation and arbitration can be less expensive and faster than going to court, but make sure the process is clearly defined in the contract. Specify how disputes will be handled to avoid any confusion down the line.
Read more about Arbitration and Mediation here:
(6) Entire Agreement
Preventing Future Misunderstandings
About: An Entire Agreement clause states that the written contract is the complete and final agreement between the parties, and it overrides any previous agreements or communications (like emails or verbal discussions).
Why it Matters: This clause prevents future misunderstandings or disputes over things that were not included in the final agreement, ensuring that no one can claim additional terms or obligations that weren’t explicitly stated.
Example Clause: “This contract constitutes the entire agreement between the parties and supersedes any prior oral or written agreements relating to the subject matter of this contract.”
Tips: Ensure that the final contract truly reflects all the terms you agreed on, as this clause prevents anything not explicitly stated from being used as a basis for future claims.
(7) Force Majeure
What Happens if Something Outside Your Control Disrupts the Agreement?
About: Force Majeure clauses address situations where an unforeseeable event (such as a natural disaster, war, or pandemic) prevents a party from fulfilling their obligations under the contract.
Why it Matters: This clause protects both parties from being held responsible for breaches that occur due to events beyond their control. Without a force majeure clause, you could be penalized for circumstances that were completely out of your hands.
Example Clause: “Neither party shall be liable for failure to perform under this agreement due to an event of force majeure, including but not limited to natural disasters, government actions, or acts of war.”
Tips: Make sure the clause is clearly defined to avoid disputes about what constitutes force majeure. Ensure that it’s not overly broad and that both parties understand their rights and obligations in such situations.
(8) Indemnification
Who Takes the Hit if Something Goes Wrong?
About: Indemnification clauses are designed to protect one party from liability in the event something goes wrong. This clause typically spells out who will bear the cost if there’s a legal issue or damage caused by the agreement.
Why it Matters: If something goes wrong (e.g.: an accident or a lawsuit), you don’t want to be on the hook for someone else’s mistakes. Indemnification ensures that one party will take responsibility and cover the costs (such as legal fees, damages, etc.) if necessary.
Example Clause: “The Contractor agrees to indemnify and hold harmless the Company from any claims, damages, or liabilities arising out of the Contractor’s actions under this agreement.”
Tips: Before you sign, make sure the indemnification is fair. You don’t want to be responsible for things beyond your control. If the clause is too broad or one-sided, negotiate for limitations to reduce your exposure.
(9) Intellectual Property
Who Owns the Final Product?
About: Intellectual Property (IP) clauses define who owns the rights to the work produced under the contract. This is critical for creative work or services where ownership of the final product, like designs, code, or content, is at stake.
Why it Matters: If you're creating original work, you’ll want to ensure that the IP rights remain with you (or are clearly transferred to the client, depending on the agreement). Without a clear IP clause, you could lose rights to your creations or face disputes later on.
Example Clause: “Upon final payment, the Client shall own all rights, title, and interest in the deliverables produced under this contract. The Contractor retains ownership of any pre-existing materials used.”
Tips: Always clarify who owns the intellectual property, especially in creative fields. If you’re providing work that will be reused or modified later, retain the right to your IP unless you're explicitly transferring ownership.
(10) Jurisdiction
Which State’s Laws Apply if There’s a Problem?
About: Jurisdiction refers to the state whose laws will govern the contract if a dispute arises. This is particularly important if you’re doing business across state lines or with out-of-state clients.
Why it Matters: Choosing a jurisdiction that’s favorable to your business can be crucial if you end up in a dispute. Jurisdictions differ in their business laws, and knowing where your contract will be enforced can influence how you approach negotiations.
Example Clause: “This agreement will be governed by the laws of the state of Colorado, and any disputes will be resolved in the courts of Springfield County.”
Tips: Select a jurisdiction that benefits your business in case of a dispute. Be sure to clearly state which state’s laws will apply, and avoid leaving it vague.
(11) Non-Compete / Non-Solicit
Keeping Your Business Safe
About: Non-Compete and Non-Solicit clauses restrict the other party from directly competing with your business or soliciting your clients or employees for a certain period after the contract ends.
Why it Matters: These clauses protect your business from losing clients or key employees to competitors. They help maintain your competitive advantage by preventing the other party from taking what they've learned from your relationship and using it against you.
Example Clause: “The Contractor agrees not to solicit the Client’s employees or customers for a period of 12 months following the termination of this agreement.”
Tips: Non-compete clauses can be tricky to enforce, so make sure they’re reasonable in terms of duration and geographic scope. Also, be sure to balance protecting your business with the other party’s right to work and compete.
(12) Payment Terms
Net 15 vs Net 30, Deposits, Milestones, and Penalties
About: Payment Terms set the expectations for how and when you’ll get paid. Common terms include “Net 15” or “Net 30,” which refer to how many days after the invoice date payment is due. Additionally, contracts may specify deposits, payment milestones, or penalties for late payments.
Why it Matters: Cash flow is the lifeblood of any business, and unclear or late payments can cause financial headaches. Payment terms protect both parties by clearly setting expectations around due dates, deposit amounts, and what happens if payments are delayed.
Example Clause: “Payment is due within 30 days of receipt of invoice. A late fee of 1.5% per month will apply to any overdue balance.”
Tips: Always include specific payment terms, such as deposits, progress payments, or penalties for late payments, to ensure timely compensation. If you’re working on a large project, consider using milestone payments to keep the project on track and reduce the risk of non-payment.
Read my guidance on how to get paid on time:
(13) Survival Clause
What Stays in Effect After Termination?
About: A Survival Clause determines which parts of the contract will remain in effect even after the contract ends. These may include obligations related to confidentiality, payment, indemnification, and intellectual property, among others.
Why it Matters: Not all terms of the contract are meant to expire when the contract ends. Some clauses, like confidentiality or indemnification, need to remain in force even after the working relationship has concluded. This clause ensures that these obligations are clearly defined and enforceable after the agreement is terminated.
Example Clause: “The following clauses shall survive termination of this agreement: Confidentiality, Indemnification, and Payment for Services Rendered.”
Tips: Ensure that any provisions you want to continue after termination are included in the survival clause. These often involve confidentiality, indemnity, and the return of materials or intellectual property.
(14) Termination Clauses
How to End a Contract on Good Terms
About: A Termination clause outlines the conditions under which either party can end the contract early. This is important to prevent getting stuck in a contract that no longer serves your business needs.
Why it Matters: Sometimes, a project or relationship simply doesn’t work out. A good termination clause lets you walk away with minimal legal repercussions. It can also include provisions about how to end the agreement on good terms, such as providing notice or compensating for work completed.
Example Clause: “Either party may terminate this agreement with 30 days’ written notice. In the event of termination, any unpaid invoices for work performed will remain due.”
Tips: Negotiate clear termination rights to ensure that both parties have an exit strategy. Be sure to include notice periods and compensation for any completed work. This protects your time and effort in case things don’t work out.
(15) Warranties and Representations
What’s Being Guaranteed?
About: Warranties and Representations refer to promises made by either party regarding the quality, legality, or condition of products or services. It can also include assurances about their ability to perform under the terms of the contract.
Why it Matters: These clauses give assurance that the goods or services provided meet specific standards, and they clarify what the buyer can expect. Without them, you may find yourself dealing with claims of poor quality or breach of agreement.
Example Clause: “The Contractor represents and warrants that the services provided under this agreement will be of professional quality and comply with applicable laws and regulations.”
Tips: If you’re the party providing services or products, ensure that your warranties are realistic and feasible. For buyers, ensure that any warranties related to quality, condition, or compliance are included in the contract.
"Legal language is designed to be impenetrable. If it were easy to understand, people wouldn't need lawyers." — Michael Crichton
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In Part 4 of this 5-part mini-series on Contracts for Small Business Owners, I’ll offer some guidance on how you should manage your contacts to avoid losing your mind.
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What a great post! Very comprehensive and clear. Thanks!!!