Contract reviewing is one of the most important part of a business deal. But you may ask, why? The answer is very basic.
Firstly, if a company signs a contract without reviewing it properly, it can lead to big losses for the company. Secondly, the process of negotiation becomes easy when companies have reviewed the contract and understood the clauses.
So, there will be no ambiguity or misunderstanding related to the contract between the parties. Thus, it is important to review a contract thoroughly before signing it.
Now that you know the essence of reviewing a contract, we shall understand that a person from a non-law background may find it difficult to review a contract, difficulty may include, not knowing the clauses to look for in a contract.
Thus, this blog will help you understand which key clauses in a contract you should look for while reviewing a sale contract. Let’s, discuss the most important 8 clauses that every company should look for in a sale contract-
Limitation of liability, basically, means a limit on your liability or limit on how much the seller can be made liable for. Elaborating upon it, it means the upper limit on how much cost you would have to bear if you breach the contract. The absence of this clause in the contract can lead to big losses to the party getting liable for the breach of contract. This clause acts as a protector of the seller. Therefore, you as a seller should include this clause in your contract.
The indemnity clause works as a protection against damage or loss. It can also be called an insurance policy since here you as a seller, promise the customer to pay for any loss, in case the customer gets sued for the use of your product. You, as a seller, should try to save yourself from this clause because it protects the customer from losses. Thus, it may increase your losses.
This clause states how your product will work and how it is similar or different from what is shown in the description. One thing to note here is that the risk of warranties does not depend upon your product but on the expectations of the customer. Thus, you as a seller should make sure that you clearly define warranties which will help you avoid unhappy customers and losses in future.
Remedies/damages are given by the party that breaches the contract, to the aggrieved party. As a seller, you should focus on capping the liquidated damages. You should add a maximum limit on damages so that both parties are aware of the loss that they will have to face and that there will be no big or extra losses. Therefore, the clause of remedies should be clearly defined in the contract.
5. Governing Law
This clause includes the law which will govern and interpret the contract. It is better if you choose the law of the land where you have your office since the contract will be interpreted by the same law and the losses or profits will depend upon the law by which the contract will be interpreted. Thus, you must choose your country's law as governing law to save yourself from big losses in times of dispute.
6. Intellectual Property Rights
Intellectual property rights help you protect your work and data. As a seller, you, should make sure that you do not let the customer infringe on your IPR. If you grant your IP to the customer, it will mean that you are sharing the essence and identity of your product or that you are sharing the knowledge of the service that only you can provide. This will lead to you staying behind your competitors since they can sell products like yours and improve their services. Therefore, you should ensure that your contract has a strong IP clause and does not let any party infringe on the IPR of others.
This clause list downs all the roles and responsibilities of the parties to the contract. It is important that such a clause is added and is clearly defined in the contract. It will help both parties to have a clear idea about their roles and expectation of the other party, it will also lead to less dispute and smooth and easy negotiations. Thus, it is better if this clause is clearly defined in the contract and parties thoroughly go through it before signing the contract.
8. Pricing and Payment
Firstly, the seller should make sure that the price of the payment from the customer to the seller shall not fixed or too rigid so that the seller can use the price clause to change the payment according to the current market standards. Thus, the seller can reduce losses in times of a bad economy. Secondly, there should be no longer payment periods, since it will lead to losses for the seller. Therefore, you must include small payment periods, so that you get more profits timely.
How Speedlegal Can Help Sellers With Identifying Risky Clauses?
Speedlegal uses AI technology and people’s knowledge to review the contracts, which differentiates risky clauses from non-risky ones.
It uses a Red Flag Table where a standard/idol clause is already present and the clauses of your contract are matched with those standards. The clauses that match the standard clause are differentiated from the clauses that do not match it.
Thus, it helps the seller to differentiate the clauses and negotiate on the unmatched clauses. This helps you as a seller to reduce the dispute at a later phase of the business deal and save you from big losses.