What should I look for before signing a contract?
Contracts · 3 minute read
Most of the risk in an everyday contract sits in five or six clauses. Knowing which ones to read closely makes a long document much less intimidating.
Read the boring parts, not the exciting ones
People read the price and the description of the work, then skim the rest. The rest is where the surprises live, because that is where the other side put the terms that protect them.
You do not need to understand every sentence. You need to find the handful that decide what happens if things go badly.
How it ends
Look for the term and termination clause. How long does this last? Does it renew automatically, and how much notice must you give to stop it? Can they end it easily while you cannot?
Automatic renewal with a narrow cancellation window is one of the most common ways people end up paying for something they stopped wanting a year ago.
What you are on the hook for
Look for indemnity, limitation of liability and any personal guarantee. Indemnity means you agree to cover the other side's losses in defined situations. A limitation of liability caps what they owe you — often at a small amount.
A personal guarantee is the big one. It means that if your company cannot pay, you personally will. Never sign one without noticing you signed it.
Where a dispute goes
Governing law, venue and arbitration clauses decide which state's law applies, where you would have to bring a claim, and whether you can go to court at all.
A clause requiring you to arbitrate in a distant state can make a small claim practically unenforceable. That is usually the intention.
Money detail
Late fees, interest, price increases, what counts as an expense that gets passed to you, and who pays legal costs if there is a dispute. Also check whether the price is firm or an estimate.
If a number in the contract does not match what you were told in conversation, the contract wins. Fix it before signing, not after.
Practical habits
Ask for changes. Contracts sent to you are drafts, not laws, and reasonable requests are normally accepted. Never sign under time pressure someone else created. Keep a signed copy with the date.
If the amount at stake is significant, having a professional read it is one of the cheapest defined-scope pieces of legal work there is — and a good use of a plan that includes document review.
Quick questions
- Can I ask to change a contract someone sent me?
- Yes. A contract you receive is a proposal. Asking for specific changes is normal and reasonable requests are often accepted.
- What is a personal guarantee?
- A promise that you, as an individual, will pay if your business does not. It removes the protection an LLC or corporation would otherwise give you for that obligation.
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This page is general education, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and every situation is different. For advice about your own situation, speak with a licensed attorney.
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