Five Contract Clauses Small Businesses Often Overlook

Business owners tend to read contracts for the terms that seem to matter most: price, scope of work, and timing. Those terms are important, but disputes often turn on the provisions near the end of the document, the ones that are easy to skim past as standard language. Here are five clauses that deserve a closer look before you sign.

1. Limitation of Liability

A limitation of liability clause caps how much one party can recover from the other if something goes wrong. It may limit damages to the fees paid under the contract or exclude certain categories of loss entirely, such as lost profits. These provisions can be entirely reasonable, but you should understand whether the cap applies to both parties equally, what is excluded from it, and whether the amount bears any relationship to the actual risk you are taking on.

2. Indemnification

An indemnification clause requires one party to cover the other’s losses arising from specified events, such as third-party claims, breaches of the contract, or negligence. Indemnities are often drafted broadly and one-sidedly. Pay attention to who is indemnifying whom, what triggers the obligation, whether it covers the other party’s own negligence, and how it interacts with the limitation of liability clause. An uncapped indemnity can expose a small business to far more risk than the contract is worth.

3. Automatic Renewal

Many service and subscription agreements renew automatically unless a party gives notice by a specific deadline, sometimes 60 or 90 days before the end of the term. Missing that window can lock your business into another full year. When you sign, note the renewal date and notice requirements, and consider negotiating a shorter notice period or a right to terminate for convenience.

4. Termination Rights

Closely related is the question of how either party can end the relationship. Can you terminate if the other side fails to perform? Is there an opportunity to cure a breach first? What happens to prepaid fees, work in progress, and your data when the contract ends? A clear exit path is one of the most valuable protections a contract can offer.

5. Governing Law and Dispute Resolution

These provisions determine which state’s law applies and where and how disputes will be resolved, whether in court, through arbitration, or after mandatory mediation. A New Jersey business that agrees to resolve disputes in another state’s courts, or through arbitration under rules it has never reviewed, may find that pursuing even a straightforward claim becomes expensive and impractical.

The Bottom Line

No contract eliminates risk, and not every clause is worth negotiating. The goal is to understand the risks you are accepting and to address the ones that matter most to your business. That is especially true for agreements with key customers and vendors, long-term commitments, and contracts presented on a take-it-or-leave-it basis.

Gugig Law drafts, reviews, and negotiates commercial contracts for businesses of all sizes. If you have an agreement on your desk that you would like a second set of eyes on, we are here to help.