The Commercial Contract Checklist: Key Legal Points to Review Before You Sign

Takeaway: Before you sign any major commercial agreement, you must run it through this checklist of key legal points, as these terms—not the price—are what will ultimately determine your risk, liability, and long-term control over the relationship.

You’ve landed a major customer or a critical strategic partner. They have sent over their standard contract for you to sign. It is a dense, 25-page document filled with legal jargon. The temptation is to quickly scan the business terms—the price and the timeline—and sign it to get the deal done. This is a massive mistake.

A commercial contract is a risk allocation document. The "boilerplate" legal language that seems unimportant is where the real risk lies. Before you sign any major agreement, you must review it with a lawyer's eye, focusing on the handful of key clauses that will govern your rights and liabilities for years to come.

Here is the essential checklist to review before you sign.

1. The Scope of Work (SOW): Is it Crystal Clear?

  • Does the contract describe, with extreme precision, exactly what products you are delivering or what services you are performing? Ambiguity in the scope of work is the number one source of future disputes.

2. Payment Terms: How and When Do You Get Paid?

  • Is the payment schedule clear? Is it tied to specific milestones or a monthly/annual subscription?

  • What are the consequences of late payment? Are there interest penalties? Do you have the right to suspend service?

3. Term and Termination: How Do You Get Out?

  • What is the initial term of the agreement? Does it renew automatically?

  • What are the conditions for "termination for convenience"? Can your customer cancel the contract at any time for any reason, or only with a certain amount of notice?

  • What are the conditions for "termination for cause"? What constitutes a material breach of the contract?

4. Intellectual Property: Do You Still Own Your "Secret Sauce"?

  • Does the contract clearly state that you retain full ownership of your "Background IP"—the core technology that you are bringing to the relationship?

  • If new IP is being created, who owns it? The default should be that you own any improvements to your own technology.

5. Confidentiality: Are Your Secrets Protected?

  • Is there a mutual obligation for both parties to protect confidential information?

  • Is the definition of "Confidential Information" broad enough to cover your needs?

  • How long does the confidentiality obligation last?

6. Indemnification: Who Pays for Lawsuits?

  • This is a critical risk allocation provision. What are you promising to indemnify your partner for? The standard is that you will cover them for any third-party lawsuits related to the infringement of intellectual property by your product. Be wary of any overly broad indemnity clauses.

7. Limitation of Liability (LoL): What is Your Maximum Exposure?

  • This is often the most important clause for protecting your startup. Does the contract have a clear "cap" on your total financial liability? A standard cap is the total amount of fees paid by the customer in the preceding 12 months.

  • Are there any "uncapped" liabilities? Your liability for your core IP indemnity is often uncapped, which is a market-standard risk.

8. Governing Law and Jurisdiction:

  • Which state's law will govern the contract? For a Delaware corporation, this should ideally be Delaware.

  • Where will any disputes be heard? The contract should specify the venue for any litigation.

This checklist is not a substitute for a thorough review by your legal counsel. However, by understanding these key points yourself, you can be a more effective and strategic negotiator, ensuring that the contract you sign is not just a source of revenue, but a foundation for a healthy, balanced, and legally sound business relationship.

Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.