Critical Guidelines on Reviewing a Contract for Your Small Business

If you are planning on establishing or growing your business, you should learn how to review commercial contracts. In simple terms, as your operation grows, you will be required to handle and sign numerous agreements. If you are not familiar with the critical elements of contracts, you might end up in legal and financial troubles. Therefore, here are some practical guidelines to help you understand general business contracts.

Check for a Contract Exit

When reviewing your commercial contracts, you should make sure that your business can get out of the agreement. The future of companies is never guaranteed or set in stone. Therefore, you should not agree to sign a document which will be difficult to terminate just because the potential profits are high. The relationship with the other business can change, leaving you in an awkward and disadvantageous position. You should check the terms outlined for the termination of the contract. For instance, a breach of contract should allow immediate cessation of the agreement. However, if the other party insists on a cure period, it should be short.

Understand the Renewal Terms

You should also check the terms of renewing the contract during your review. Some contracts can trap you in a forever business agreement with stealth. Therefore, you should read the terms for renewing the contract before signing. Typically, written business arrangements are made to facilitate automatic renewal. This practice minimises wastage of time while allowing the termination of the relationship if necessary. However, there are some contracts which do not provide flexibility on the renewal. For example, the legal document might state that the agreement will be automatically renewed unless you stop the process on a particular day between specified hours. If this exit window is too narrow, you might be stuck. Negotiate for more flexibility on renewal.

Avoid Indemnifying Clauses

Finally, you should watch out for indemnity clauses when reviewing any contract. In simple terms, indemnification allows one party to take responsibility for losses and injuries resulting from business activities, regardless of the liable side. If your company is supposed to indemnify the other party, you should reject this section of the contract. Otherwise, you will end up with unnecessary legal and financial burdens. Ideally, the contract should make it clear that each party will not cause liability issues for the other. 

Contract law can be complicated for an individual without experience in legal issues. Therefore, you should think about hiring a commercial law lawyer to review your small business agreements.


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