Contracts 101: What Every Entrepreneur Must Know Before Signing Anything
Verbal agreements are legally binding in many cases, but proving them in court is like proving you saw a UFO — technically possible, practically impossible. Get everything in writing.
Every business contract needs six elements: offer, acceptance, consideration (something of value exchanged), capacity (both parties can legally agree), legality (the contract is for something legal), and mutual assent (both parties understand and agree).
Contracts you need on day one: service agreement (what you'll deliver, when, and for how much), independent contractor agreement (if you work with freelancers), NDA (to protect your ideas during business discussions), and terms of service (if you have a website or app).
The termination clause is the most overlooked and most important section. How can either party end the agreement? What notice is required? What happens to work in progress? What about intellectual property created during the contract?
Indemnification clauses allocate risk. They say who's responsible if something goes wrong. Read these carefully — they can make you liable for things you didn't cause. When in doubt, push back or add mutual indemnification.
Non-compete and non-solicitation clauses: understand what you're agreeing to. A non-compete that prevents you from working in your industry for five years worldwide is probably unenforceable, but fighting it in court is expensive.
Payment terms should be crystal clear: amount, schedule, method, late fees, and what happens if payment is disputed. 'We'll figure out payment later' has ended more business relationships than actual disagreements.
Always have a lawyer review contracts over $10,000 in value or long-term commitments. Legal review costs $200-500 per contract. The lawsuit it prevents costs $20,000-200,000+.
Template contracts from the internet are starting points, not final products. Every business relationship is unique, and your contract should reflect your specific situation.