Whether you’re a college student building your first business or a serial entrepreneur, every business owner deals with contract management—whether they like it or not. Business contracts are legally binding and should be read through with the utmost scrutiny. Surprisingly though, many small business owners will gloss over a contract and only sign on the yellow highlighted line. Before you put pen to paper, watch out for the contract red flags listed below. 

1. Ownership of Work

This may seem obvious, but it’s important to double and triple-check that the owner of the produced work is clearly defined in the contract. You want to ensure you are not giving up a large chunk of your business. 

1. Penalties

Penalties cover who is responsible should something go wrong with the contract. Make sure both parties agree on who the responsible party will be and which penalties they will receive so you don’t get screwed over if your partner breaches the contract. 

1. Indemnity Clauses 

Similar to penalties, indemnity clauses define which party will be responsible for paying specific damages. Just like a construction bond protects its employees, this section is meant to protect your business from losses due to negligence. 

1. Venue Provision

This is an important one that many business owners will forget about. The venue chosen will determine which jurisdiction’s laws apply. If the venue chosen is outside of your state, try to negotiate for one in your state or in a neutral location. 

1. Automatic Renewal Clause 

Larger contracts may have automatic renewal clauses hidden in the fine print, making it difficult to identify immediately. Check to make sure there is no automatic renewal clause in your contract. If there is one, make sure it’s taken out. 

Many contracts contain legal jargon that can be confusing to the average business owner. For more tips on how you can protect yourself against contracts, check out the infographic from JW Surety Bonds below. 

Sources:
IACCM