As a business owner, you know very well how important contract negotiations are. In order to preserve the benefits of the bargain you just negotiated, its equally important to make sure the terms of the negotiation are memorialized fully and accurately in the contract, which will guide every aspect of the deal.
While not every contract is the same, there are certain elements that should always be included in every agreement to protect your business.
5 clauses a contract needs
Regardless of the specifics of this contractual relationship, these are some key clauses to include:
- Dispute resolution or mediation clauses: Whether minor or major, disputes are almost inevitable. Establishing guidelines for how to approach and effectively resolve those disputes will be critical to reduce risk. While mediation clauses can rarely go wrong, in certain circumstances it may be beneficial to have an arbitration clause to avoid having the dispute go through the court system.
- Force majeure clause: There are some things neither party can control, but which could impact the ability to fulfill the terms of the contract. This clause helps to protect your business from such matters outside of your influence, such as employee strikes and natural disasters.
- Confidentiality clause: Classify exactly what information must remain exclusive between the parties. This will be especially critical to protect your business’s intellectual property. However, in terms of an employment contract, business owners and employers must take care that they do not violate an employee’s civil rights with confidentiality agreements.
- Limitation of liability clause: If the terms of the contract are violated, you must outline exactly what liabilities each party could face in that situation. Clearly explaining the penalties for violating the contract can help often help avoid a breach of contract, since each party will wish to avoid those consequences.
- Termination clause: When first crafting your contract, you may not wish to think about ending that particular business endeavor or relationship. Even so, it is important to address and outline the terms and details for when and how the parties involved can legally end the contract.
In each case, it will be critical to ensure the details of these clauses, and the contract as a whole, align and adhere to California laws.
These five clauses are by no means the only essential ones to include when drafting your contract. In the process of creating a contract, it will be beneficial to consult a business attorney to secure the interests of your business’s future.
