Common Contract Clauses

Payment: If a contract has responsibilities, there will generally be some type of payment associated. This section will outline what payment will look like, ie. whether it is a lump sum or a revenue or profit share, and how payment will be delivered. If there are any stipulations or deliverables associated with the delivery of payment, they will be listed here. If the payment is a profit or revenue share, those terms will also be defined, inclusive of how those final numbers will be calculated. If the payment will be made in installments or over time, those specifications will also be included. 

Independent Contractor - Nature of Relationship: Many agreements will explicitly state the nature of the relationship between the two parties to eliminate any confusion. In basically every case other than a W-2 Employment contract, the nature of the relationship will be of independent contractors. The point of this is to state clearly that the parties are not agents or employees of each other, meaning no party can act on behalf of the other party. For example, if me and you have a contract, I cannot sign an agreement on your behalf between you and my friend Joe. Independent Contractor status is exactly what it sounds like - two independent parties. 

Confidentiality: Almost all agreements will have some type of confidentiality clause, if not an additional standalone NDA (non-disclosure agreement). These can vary in specificity and what qualifies as “confidential information”, but the general rule of thumb is: if it’s not available to the public, don’t share it. If a company just announced a big event they’re doing later this year, feel free to tell all your friends. However if you know the company is planning an event, but they haven’t announced it yet, keep it to yourself. We’ll go over confidentiality more in the following section on NDA’s specifically. 

Expenses: If the agreement is for some exchange of services, there may be a section that outlines how expenses are to be treated in respect to rendering the described services. For an independent contractor, they will generally be responsible for all of their own expenses. However, there might some expenses that the company will be willing to reimburse (eg. materials). This section is usually very straightforward (if it exists at all) since the whole point is to remove any confusion around who should be paying for what. If expenses are to be reimbursed, there’s almost always a requirement for those expenses to be approved ahead of time by whoever is to be doing the reimbursing. 

Exclusivity: Depending on the nature of the contract, there may be a section relating to exclusivity. This section will outline if there’s any rules against either party engaging with different businesses. For example, if a marketing company is being signed on by a business, there might be an exclusivity clause that prevents the business from hiring an additional marketing company. Typically exclusivity clauses are in respect to a specific purview - meaning the exclusivity would only be in respect to the general area of services described in the agreement. Sometimes these clauses will also include a right of first refusal for the service supplying entity. 

Indemnification: If the contract involves one party acting on behalf of or representing another, this section basically says that the party providing the services can’t get in trouble for doing what they’ve been contracted to do. Indemnification in this case means “to free from liability”. Generally this section will have exclusions like if the party in question violates the law, or does something outside the scope of the agreement. 

Service Interruption: Some contracts will have this section relating to services outlined in the contract. The point is that if there is some natural disaster or other act of God that prevents one party from rendering the services under the contract, there will be some leeway and the contract will not be violated. Typically there will be a stated time frame that will be an “acceptable” break from service, after which services and responsibilities are expected to return to being fulfilled. 

Severability: The point of this section is to protect the agreement against rulings from court or specific laws. A judge might rule that a specific section of the agreement is unfair or unenforceable - this however, does not mean that the entire agreement is void. That’s the point of this clause. Even if one section of the agreement is tossed out for whatever reason, the rest of it will continue to stand. 

Notices: In a lot of agreements it’s helpful to have a process outlined for communication between the parties as it pertains to the agreement. In some contracts, communication between parties will be explicitly listed as some of the responsibilities. This section will outline acceptable forms of communication, such as email, letter, or text, and will often specifically list the name, address, email, and phone number of the responsible party for all parties to the agreement. This section is mostly important in regards to terminating the agreement. For example, if you want to cancel the contract, you should submit that “notice” in accordance with this clause. 

Waiver: Sometimes over the course of an agreement, one or both of the parties might forget or choose not to enforce certain parts of the agreement. This could happen for whatever reason, but the point of this section is that just because somebody didn’t enforce something once, doesn’t change the fact that it’s still required under the agreement, and it certainly doesn’t mean that they can’t enforce it in the future. Claims like “but we never actually did it that way” will never hold up in court. All that matters is what’s on paper. 

Applicable Law: Basically every contract will have a short section that outlines what jurisdiction’s laws will govern the terms of the agreement. This will also be the jurisdiction that any disputes between the parties are settled in. Generally, this is the state that one or both of the companies are incorporated in. 

Counterparts: This section simply means that multiple copies of the agreement can exist, and they’ll all be considered one agreement. The point of this is so that you can send a paper copy of the contract to multiple people to sign, they each sign their copy, and then the agreement is taken as a whole, even though there’s two separate copies. 

Electronic Signatures: A lot of modern agreements will have a short section that says electronic signatures are valid. These days, lots of people/companies use DocuSign or AdobeSign, so this clause just says that those things are allowed.

Amendments & Addendums: While contracts are considered to be final at the time of signing, you may want to change something in the future, or add additional sections. If you want to change an existing part of the agreement, this is considered an “Amendment”, and must be written up on a separate sheet of paper and attached to the original agreement, with all relevant parties signing to approve the change. Similarly, if you want to add an additional section, that’s called an “Addendum”, and is subject to the same requirements (all parties signing a separate sheet of paper). 

Headings: The last section in a lot of contracts which simply states that the headings (titles) of each section don’t actually mean anything. Pretty self explanatory. 

Not all contracts will have all of these sections, and some may have more. The idea here is to gain familiarity with some common contract clause types so that when you’re looking at a template you downloaded, you know what each section is talking about. Templates are great, but only if you understand them.