Top 5 Clauses Every Business Contract Must Have in 2025

Top 5 Clauses Every Business Contract Must Have in 2025

Contracts form the backbone of nearly every business transaction. In order to be effective, your contracts must be carefully negotiated, drafted, and reviewed to protect your legal interests.

While contract provisions that define the terms of payment, deliverables of each party, and  timelines for execution are essential, some of the most important clauses are often found near the end of the agreement. Often referred to as “boilerplate,” these provisions serve a critical role in clarifying the relationship between the contracting parties. In addition, neglecting them can lead to unintended legal consequences.

Though every legal agreement is unique, all business contracts share certain elements in common. In order for a business contract to be enforceable, there must be a valid offer and acceptance, supported by consideration. All parties must intend to be legally bound by the contract. They must also be aware that they are entering into a contract and are not signing under duress, misrepresentation, or fraud.

Key Clauses in All Business Contracts

Whether you are entering into a purchase and sale agreement or a professional services contract, business contracts contain many of the same provisions. Below are five key contract terms clauses that are extremely important, yet sometimes overlooked:

Force Majeure

The COVID-19 pandemic highlighted the need for clear and comprehensive force majeure clauses.These clauses relieve the parties from performing their duties under the contract in certain circumstances, particularly those deemed beyond the parties’ control that make performance of the contract inadvisable, commercially impracticable, illegal, or impossible. Common examples include natural disasters or “acts of God” (hurricanes, floods, earthquakes, and other similar events), as well as manmade disasters (war, terrorism, civil disorder, supply shortages, and labor strikes).

While force majeure clauses are often considered “boilerplate,” the provisions can differ widely between contracts and, therefore, must be carefully negotiated. Some provisions are worded very narrowly and, thus, may only apply in certain very limited circumstances. For example, some force majeure clauses may only excuse performance when it is impossible, rather than impractical (untimely, expensive, etc.). Other provisions will only list certain circumstances that excuse performance, rather than including a catchall such as “other unforeseeable events beyond the control of the parties.”

Indemnification

While indemnity clauses are one of the most contentious terms in any contract, they are also essential to reducing your risks. The term “indemnify” refers to the legal duty to make good on any loss, damage or liability incurred by someone else. So, when you agree to accept an obligation to indemnify, the risk shifts from the other party to you.

Indemnification clauses are commonly found in agreements where the risks associated with a party’s non-performance, breach, or misconduct are significant. While you may not be able to completely avoid indemnification liability, it is possible to limit the scope. For example, clauses may be drafted to cap liability at a certain amount, to require advance notice, to restrict liability to third-party claims or other specified losses, or to restrict the right to indemnification to a limited time period.

Dispute Resolution

When negotiating a business agreement, it may seem pessimistic to think about what happens if something goes wrong. Nonetheless, it is highly advisable to have a clear dispute resolution process in place. Being forced to litigate breach of contract claims or other contract disputes can be both costly and time consuming.

All business contracts should clearly address what means of dispute resolution are available to the parties and under what circumstances. Elements that should be addressed when drafting or adopting a dispute resolution clause include: whether the clause covers all disputes that may arise or only certain types; whether the parties agree to arbitrate and/or mediate their disputes; whether a panel of one or three arbitrator(s) will  be selected, and how arbitrators will be selected; where the arbitration will occur; and what law will govern.

Certain types of contracts, such as international business agreements or construction contracts, may require additional elements. The parties may also negotiate a dispute resolution clause that is tailored to their industry or other needs.

Non-Disclosure

If any confidential information, such as revenue projections, operating expenses, product formulas, business plans, and customer lists, may be disclosed to your contract partner, it is imperative that your business agreement include a well-drafted non-disclosure provision.

Any non-disclosure clause must clearly define what the parties agree to keep as confidential and what they don’t. The goal is to draft the agreement so it is broad enough to cover all truly proprietary information and narrow enough not to overly burden the parties with compliance concerns. Non-disclosure provisions should specify that the information may only be used for a particular stated purpose, such as pursuing a specified business opportunity between the parties. Such clauses should also often carve out exceptions for certain people to whom the confidential information may be disclosed, i.e. attorneys, accountants, and other consultants directly involved in the transaction. 

Governing Law and Forum Selection

A choice-of-law or governing law provision is a contract term in which the parties specify that any dispute arising under the contract will be determined in accordance with the law of a particular jurisdiction. The goal is to ensure that any litigation is resolved in accordance with a favorable or at least well-developed body of law, i.e. corporations incorporated in Delaware usually want the law of Delaware, or of the state in which the company’s offices and attorneys are located, applied. Careful review of choice-of-law provisions is also important because they are often written broadly to include, not only breaches of contract, but other claims that may arise out of the relationship between the parties.

Forum selection clauses are different in that they specify that any litigation resulting from the contract must be initiated in a specific forum, such as before particular court or arbitrator. In other words, the clause dictates where your business can sue and be sued. These clauses are important because litigating out of state, or even in a different county,  can be both costly and time consuming. Additionally, if the contract designates your contracting partner’s home jurisdiction as the forum for litigating disputes, you could also unwittingly give them a “home court advantage.”

Therefore, if you have a strong bargaining position, it is always advisable to negotiate a broad clause that designates the courts of your home state and county. If you don’t have the upper hand, you can still work to designate a neutral forum and/or a narrow clause that covers only contract claims.

Legally enforceable business contracts are essential to protecting the interests of your business and shielding you from personal liability. Meanwhile, ambiguous contract provisions can be difficult to enforce and often lead to business litigation.

The attorneys of Scarinci Hollenbeck’s Corporate Law & Financial Transactions Group assist clients in drafting, reviewing, and negotiating commercial contracts that protect their interests and mitigate risks. We understand that every business is unique, and we tailor our services to meet the specific goals of our clients.