ClearFocusLaw.com

10 Contract Red Flags That Can Hurt Your Business Big

I recommend that you get the help of a reputable and experienced contracts lawyer if you see any of these RED FLAGS.

Contract Red Flags

Red Flag #1: Contract is on paper and looks like a photocopy of a photocopy

Chances are the contract wasn't professionally drafted
Instead, it was just copied from somewhere else
Likely many inapplicable or problematic terms

Red Flag #2: Doesn't clearly state who you're contracting with

Contracts need both parties clearly identified
If this basic step isn't even correct, then rest of contract is highly suspect

Red Flag #3: States that contract is with you individually as opposed to with your company

If your business is LLC or corporation, NEVER EVER sign contract in your own name
Signing in your own name eliminates protection of LLC/corporation
Contract MUST be with your LLC/corporation and you MUST sign as company representative (like "Member" or "CEO" or "President")

Contract Red Flags

Red Flag #4: Doesn't clearly state what each party is to do

Nothing should be left up to assumptions or what was verbally discussed
The responsibility of each party (even if it's just to pay the other) must be spelled out

Red Flag #5 Doesn't clearly state timing of when deliverables are to be met

Timing of deliverables must be clearly stated
Should also include what should happen if timing is not met (reduced price, automatic extension, contract termination, etc)

Red Flag #6: Things verbally agreed to are not included in contract

All prior verbal agreements MUST be included in a written contract
Otherwise, written contract will usually nullify the prior verbal agreement

Contract Red Flags

Red Flag #7 Has one-sided indemnification language

Indemnification provisions create significant liability risks and must be fully understood
One-sided indemnification (i.e. you are required to indemnify the other party but not the other way around) is a HUGE red flag
You should always seek help from an experienced contracts lawyer if you have any questions about indemnification

Red Flag #8 Doesn't state where disputes are to be resolved

Called "venue" provision
Creates a significant risk that you will be required to settle any disputes in another state (like where the other party's main office is located) or even in another country (with international contracts)

Red Flag #9: One-sided attorney fee clause

Clause requiring you to pay other side's attorney's fees in a dispute, but not the other way around, is a big red flag
If present, attorney fee clause should be mutual and should require the party that loses to pay the winner's fees

Contract Red Flags

Red Flag #10 Onerous or One-Sided Intellectual Property or Trade Secrets Clause

Contracts can contain onerous requirements for you to protect the other party's intellectual property
Sometimes these provisions are overbroad and can require you to protect things that aren't really intellectual property or that you yourself created!
It's also a red flag when the contract requires that you take steps to protect the other party's intellectual property when they aren't required to protect yours in return

Hire me for on-going contract reviews

If you have a contract-intensive business, then having them reviewed before you sign is critical. Contract review is just one of the many services I offer to my Subscription Legal Services clients. To learn more about how to have me as a strategic legal partner for your growing business, just click on the button below.

IS SUBSCRIPTION SERVICES RIGHT FOR ME?