Most small business owners sign contracts regularly, vendor agreements, client contracts, leases, without a lawyer reviewing every one. That's often reasonable for low-stakes agreements, but a handful of clauses show up repeatedly and are worth understanding on sight, because they allocate real risk.
1. Indemnification
An indemnification clause requires one party to cover the other's losses, damages, or legal costs arising from specific events, often a breach of the contract or a third-party claim. Watch for whether the obligation is mutual or one-sided, and how broadly it's written, an indemnification clause that isn't limited in scope can expose your business to open-ended liability.
2. Limitation of Liability
This clause caps how much one party can be required to pay the other if something goes wrong, often limiting damages to the amount paid under the contract and excluding indirect or consequential damages. Without this clause, a small contract dispute could theoretically expose a business to damages far exceeding the contract's value.
3. Termination
Termination clauses define how and when either party can end the agreement, whether for convenience, for cause (a breach), or automatically at the end of a term. Pay attention to notice periods, any "cure period" allowing the other party to fix a breach before termination, and what obligations (like final payment) survive termination.
4. Governing Law and Dispute Resolution
This clause determines which state's law applies and how disputes are resolved, through litigation in a specific court, or through arbitration. For a Virginia business, agreeing to litigate disputes in a distant state's courts, or agreeing to binding arbitration without understanding what that gives up (like the right to a jury trial), can matter a great deal if a dispute actually arises.
5. Assignment
An assignment clause governs whether either party can transfer their rights and obligations under the contract to someone else, for example, if your business is sold or restructured. Contracts that prohibit assignment without the other party's consent can complicate a future sale or reorganization if not negotiated carefully upfront.
When to Get a Second Set of Eyes
Routine, low-value agreements with standard terms are often fine to sign without review. Contracts involving significant dollar amounts, long terms, exclusivity, or unfamiliar counterparties are worth a legal review before signing, since these clauses are exactly where risk tends to hide.