Business Contracts: What to Check Before You Sign

Most small business owners sign contracts written by the other side: vendor agreements, commercial leases, client contracts, software terms. The clauses that cause trouble later are usually in the parts people skim.

Clauses to read slowly

Payment terms. When is payment due, what happens if it is late, and are there automatic price increases?

Term and renewal. Many contracts renew automatically unless you cancel within a narrow window. Put that date on your calendar.

Termination. Can you get out early, and what does it cost? Is it only the other side that can end the contract?

Personal guarantee. If you sign a personal guarantee, you can be personally liable even if your business is an LLC or corporation. This is common in leases and loans and easy to miss.

Indemnification. This decides who pays if something goes wrong and someone sues. One-sided indemnity clauses can make you responsible for the other party's mistakes.

Limitation of liability. Check whether it caps only what they owe you, or what you owe them too.

Non-compete and non-solicitation. These can restrict who you work with after the contract ends. Rules on non-competes vary a lot by state.

Dispute resolution. Look for mandatory arbitration, which state's law applies, and where any lawsuit must be filed. A clause requiring disputes in another state can make enforcing your rights expensive.

Intellectual property. If you are creating work for a client or hiring someone to create it for you, the contract should say who owns it.

Practical habits

1. Never sign a contract with blanks.
2. Make sure everything you were promised verbally is written in.
3. Keep a signed copy of every contract in one place.
4. Ask for changes. Many "standard" contracts are negotiable, especially leases.

When to get a lawyer to review

A business attorney review is worth the fee for commercial leases, contracts with large dollar amounts or long terms, anything with a personal guarantee, partnership and operating agreements, and the purchase or sale of a business. See also LLC vs. corporation and partnership and operating agreements.

Find a business attorney near you to review a contract before you sign.

This guide is general information, not legal advice.