Contracts 101: common types of clauses.
Learn more about standard clauses within a contract, what they mean, and when you might come across them in business.
A business contract is a legally binding agreement that defines the working relationship between two or more parties, including their roles, responsibilities, compensation, benefits, and other aspects of the relationship. Whether you’re an employee entering into an employment contract or a business owner building partnerships with other business owners — to take just a few examples — it’s helpful to understand some of the standard legal clauses to help prevent misunderstandings down the road.
Types of clauses within a contract.
Here are some common clauses that may be applicable within your business:
- Non-compete: Typically found in employment contracts, this clause keeps an employee from working for a competitor, usually for a specified period of time after the employment ends.
- Non-disclosure: A non-disclosure agreement keeps confidential information from being shared outside of the involved parties.
- Time of performance: In time-sensitive matters, this clause states when contract duties can or cannot be performed.
- Arbitration: This clause relates to disputes within your business. If a dispute arises, you agree to first attempt to solve the problem with a third-party person (arbitrator) versus a court proceeding.
- Severability: This is a unique clause that relates to other clauses. If another clause is invalid, this clause states that the rest of the contract is still valid, eliminating the need to write and sign an entire new one.
- Statute of limitations: If you or other parties break a contract, this clause sets a time limit for filing a lawsuit.
Clauses are just one element of standard contracts. There are additional essential elements you should always include when writing a contract. These include basic information (legal names/business names), rights and responsibilities, dates, and signatures of all parties.
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