Contract Term Glossary for Business Owners

As a business owner, you have to wear many hats: entrepreneur, manager, employer, and more. One thing you will do repeatedly as a business owner is read and review contracts. Whether it is a commercial lease, a vendor agreement, a purchase or sale agreement, an employment agreement, a partnership agreement, or another type of contract, to do business is to enter into business agreements. 

Although you may find that business contracts contain a bunch of “legalese,” the name for legal words that are not familiar to non-lawyers, many of these terms come up frequently. Whether on your own or by talking to a qualified attorney, it can be helpful to familiarize yourself with the legal terms that are used often in business agreements.

Glossary of Business Contract Terms 

• Arbitration: An arbitration provision in a contract will provide that the parties need to settle certain disputes in arbitration before or instead of litigation. Arbitration is a legally binding private court process.
• Assignment and delegation: When you assign or delegate rights or property to another individual or entity, you transfer to them the rights that were contractually yours. When you delegate duties to another you transfer your responsibilities under the contract (or a specific section of the contract) to them.
• Confidentiality: A confidentiality clause forbids the parties from sharing certain confidential information acquired before or during the course of the contractual relationship. The exact terms of the confidentiality clause can vary widely depending on the contract and the relationship between the parties.
• Definitions: This section, as its name suggests, defines terms in the agreement. It is usually used in more complex and longer agreements.
• Dispute resolution: When the contract includes a dispute resolution clause, it will govern the types of processes that parties agree can be used to resolve disputes between them, including negotiation, mediation, arbitration, or litigation.
• Force majeure: Technically meaning “superior force,” this term governs what will happen to the parties’ rights and responsibilities under the contract if an unexpected event occurs, such as an act of nature (hurricane) or people (wars).
• Governing law: Sometimes the parties will add a governing law provision in which they agree to use the law of a certain jurisdiction (whether local or state) in the event they have to resolve a dispute. For example, the parties may be doing business in different states but agree that the laws of Illinois will govern.
• Indemnification: When you indemnify someone, you agree to compensate them for certain losses or harms resulting from a particular circumstance. Usually, when a party agrees to indemnify another for any third-party claims, they agree to compensate that party for any claims by someone who is a party to the contract.  
• Jurisdiction: This term refers to the city, state, or country’s courts that will be authorized to hear a dispute between the parties. Some jurisdictions may be more favorable to one party over another, so negotiating a good jurisdiction clause can protect a party in the event of litigation.   
• Limitation of liability: This clause limits the amount of damages that one party may recover from another.
• Noncompete: A provision that limits or prevents the ways in which one party can engage in a competing business for a certain period of time and in a certain geographic area. These types of terms can be found usually in employment, sale-of-business, or partnership agreements.
• Parties: The parties to the contract are the individuals or entities signing the agreement.
• Payment terms: This section lays out the amount, time, and manner in which payment will be made.
• Scope of services: This term refers to the description of the tasks and responsibilities that the party providing the services under the contract is agreeing to provide. This section will usually contain a detailed explanation of the services to be provided for a project.
• Recitals: Some contracts contain recitals at the beginning of the contract that provide background information on the parties and the reason they are entering into the contract. They are usually included to help interpret the parties’ reasons for entering into the agreement.
• Term and termination: A contract’s term is the time frame during which the agreement is valid, from the contract start date to the end date. Termination will detail under what circumstances the contract may be terminated.
• Warranties and representations: This section lays out the parties’ assurances about circumstances and conditions, promising that these are true and accurate as of the time they are made. 

Do I Need a Lawyer to Review My Business Contracts?

Although there are certain terms that are repeatedly included in business contracts, the content of the terms will vary depending on the circumstance. A qualified attorney will review your contract and explain the legal and business ramifications of the terms for your business specifically. An attorney can also help negotiate terms that are more advantageous to your business. 

What Should I Do if I Signed a Business Contract that I Did Not Understand? 

It is understandable to be concerned if you signed a business contract that you did not understand. However, by contacting an experienced business contracts attorney, you can receive guidance on the terms you did not understand and advice on options available to you to protect yourself now or in the event there is a future dispute. 

When Does a Business Need to Use Contracts?

Nearly every situation arising out of a business need will necessitate the use of a contract. Even when a contract is not absolutely necessary, you can best protect yourself and your business by putting things in writing. Some common business contracts are:

• Consulting Agreements
• Sales Contracts
• Contractor Agreements
• Licensing Agreements
• Employment Agreements
• Vendor Agreements
• Termination Agreements
• Construction Contracts

Contact a Naperville, IL Business Contracts Attorney

As a business owner, understanding the agreements you sign on behalf of your business is vital, and negotiating favorable terms can protect your business in the event of future disputes. An experienced Naperville, IL business law attorney can provide legal advice on contract terms that your business needs to run its best. At Gierach Law Firm, attorney Denise Gierach has the expertise to assist your business with its business contract needs. Call the law firm at 630-228-9413 to schedule a meeting to discuss your legal needs.