Finance/Legal terms in a Business Contract


It is advisable to consider below financial/legal clause into consideration before signing of a contract. A very brief note against each clause is also mentioned.

  1. Commercial – All the commercial should be duly approved by authorized person only.
  2. Period of Agreement – Time period for which contract will be valid like contract will be valid for 2 years from date of signature of contract.
  3. Payment Schedule/Terms – Milestone payment should be clearly defined. Also due date of payment should be agreed. For e.g. payment will be due after 30 days of invoicing.
  4. Taxes – Contract amount should be exclusive of Taxes. If not possible, need to include clause mentioning taxes will be recalculated in case of any change in Law.
  5. Limitation of Liability (LOL) – This clause should be mutual and should be drafted very carefully.
  6. Termination Clause – Drafting of this clause should be in such a manner that both the party should be in a win-win situation.
  7. Late Payment – This clause will help getting the payment on time. Under this clause, applicable interest should be mentioned in case of delay in payment.
  8. Subcontracting – If vendor is supposed to outsource some work, this point should be clearly mentioned.
  9. Indemnity clause – This clause is for risk transfer of one part to another party. Mutual clause is always preferable.
  10. NDA – There should be a separate NDA between parties.
  11. IP Rights – It should be very clear as with whom IP right will remain, either in continuation of contract or in termination.
  12. Delay or Suspension of work – Party in fault should be at losing end.
  13. Jurisdiction – Very important clause to mention.
  14. Force Majeure – Again, Force Majeure should be clearly defined to restrict any unwanted obligation.
  15. Non-Compete and Non-Solicitation – Should be drafted as per requirement of contract.
  16. Signature – This is very important. Contract document should be signed by authorized person only. It should be signed by both the party.

Apart from these there can be other clauses in a contract like, Scope of work , Confidential Information, Return of Confidential Information, Sales policy, Order and Collection, Notices, Exclusion etc.

Manish Dalmia, FCA