A well drafted contract covers all bases. Business attorneys receive calls requesting “iron clad agreements” or “rock solid contracts” regularly. These descriptions always humor me because ultimately we’re talking words on paper not impenetrable mountains. But, I get it that clients want the strongest protection possible.

So what does that look like?  For the average small business, you want the following 5 contract must haves:

1. Detailed Services

This section has many names: scope, services or duties. It’s usually the first clause in the agreement and rightfully so. A contract represents a legal exchange of products or services for money. We want to describe that exchange as accurately as possible. What type of service are you providing? What is included / excluded? Will it be delivered all at once or in stages?

You want to be as specific as possible so there is no confusion between you and your client or customer. Taking the time to specify exactly what you provide ,and how you will provide it, will set expectations from the start saving time later.

2. Fees / Payment Terms

Ah…money. I mean, who doesn’t want to get paid? The fee section typically follows the services description and again, you want to be precise, this time about your charges. Spell out how you expect to be paid, whether it’s a one-time flat fee or monthly payment. If you have an hourly rate, include it and set the number of hours you can work per week.

And don’t forget your payment terms. You’ve told them how much you are to be paid but you must also tell them when. Set the number of days you expect to be paid after you issue an invoice, such as within 15 days, for example, so you’re not waiting months for payment.

3. Termination

Business owners often do not value the benefit of a termination clause until it’s too late. If you want to avoid being stuck with the client from hell without defaulting on your end of the agreement, have an easy “out” clause in your contract.

A termination clause can be mutual or unilateral. A simple mutual clause gives either party the opportunity to exit the contract with payment given for all services or products delivered until that point. If unilateral, only one party has the say on when to call it quits. This is often used with large companies with more bargaining power.

Ideally, you want an exit plan in your client agreement just in case. This clause will typically require a certain number of days written notice to the other side. And while you may feel uneasy giving your client an easy way out, you probably want to avoid working with someone who no longer wants to work with you anyway.

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4. Intellectual Property Ownership

Intellectual property includes your original creations, particularly those protected by trademark, copyright and patent.  When providing services for others, you may design something for a client, say a logo or website, or create copyrighted materials such as an ebook. If someone hires you to create something, your contract should discuss how the ownership of the material is handled.

In most cases the ownership is transferred but in other instances you may only wish to license the material, such as when a template may be used with other clients. This process should be fully explained in the agreement so when the services are complete the rightful owner has possession.  

5. Limitation of Liability

When doing business you want to limit your risks as much as possible. There are a group of clauses usually near the end of the agreement that cover mitigating risks. These clauses include indemnification, warranties and limitation of liability. These are must haves because though they can be lengthy, full of legalese and in all caps, they’re necessary to shift liability to the right party, limit damages owed in a lawsuit and either offer or disclaim warranties.

These boilerplate type clauses aren’t as fun as say, the fees section, but they are definitely must haves when doing business. Because if there is a business dispute, these are the sections of the contract that will be heavily reviewed and possibly save you a lot of money.

Hope these contract must haves give you a new appreciation for your contract template. When creating a contract or being presented with one, consider these vital clauses before signing.

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This blog posting is provided for general informational and educational purposes only and is not provided for specific, individual legal advice.

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