Key Clauses to Include in a Business Contract to Avoid Disputes
Sept. 19, 2025
When parties enter into a business relationship, most of them don’t expect a dispute to arise. Unfortunately, it happens more often than most people think. One of the best ways to prevent conflict is to draft a clear, detailed agreement from the start.
I’ve handled enough contract disputes to know that the strongest protection often comes down to what’s on the page. Through my experience practicing business law in Los Angeles, I’ve seen how thoughtfully crafted contract language can make all the difference when disagreements occur later on.
Whether you’re forming a partnership, hiring a contractor, or engaging in a long-term supply agreement, there are certain clauses every business contract should contain. Including the right terms early helps avoid expensive litigation later, and it also promotes clearer expectations between parties.
Why Contract Clarity Matters in Business Law
The field of business law is built on the principle that written agreements should be enforceable and fair. When a contract lacks clear terms, it leaves room for interpretation, and that’s where most disputes begin.
Two parties may read the same paragraph and walk away with completely different understandings of what’s required. By outlining specific rights and obligations, you reduce that risk and protect both your interests and your business relationships.
That brings us to the key clauses that help reduce misunderstandings before they start. While the full contract will vary depending on your business type, industry, and goals, most agreements benefit from including the following provisions.
Clear Identification of the Parties
Every contract should start with the full legal names and roles of each party. This step may seem obvious, but I’ve seen agreements where ambiguous or incomplete names led to enforcement problems later on.
For clarity, a contract should list:
Full legal business names: Include LLC, Inc., or other identifiers.
The legal representatives signing the contract: Make sure the person signing has authority to bind the business.
Contact information: Such as business addresses and primary contact methods.
Once the parties are identified, the contract can refer to them consistently—using “Buyer” and “Seller” or “Client” and “Service Provider,” depending on the situation.
Scope of Work or Services
Ambiguity in a contract’s purpose is one of the fastest ways to create confusion. I always recommend being as specific as possible about what each party is agreeing to do.
A strong scope clause should include:
Detailed description of goods or services: Avoid generic terms like “consulting” or “products.” Instead, spell out exactly what will be delivered.
Deadlines and milestones: List due dates or timelines for performance.
Standards or benchmarks: If quality or volume matters, define the acceptable level.
In business law, vague contract obligations often lead to breach claims. A detailed scope section sets expectations early and helps avoid disputes down the line.
Payment Terms and Timing
Money is often at the heart of business disputes. To reduce conflict, contracts should clearly state how much is being paid, when payments are due, and under what conditions they can be withheld.
Key components to include are:
Total payment amount: Or payment structure, such as hourly rates or monthly retainers.
Due dates: Including whether payment is due upon receipt, within 30 days, or tied to project milestones.
Accepted payment methods: Checks, ACH, wire transfers, etc.
Late payment penalties: Interest rates or service charges on overdue balances.
By making payment expectations unmistakable, both sides can operate on equal footing—and avoid financial surprises.
Term and Termination Provisions
Even well-planned business relationships may need to end. A contract should include clear terms for when the agreement begins, how long it lasts, and how it can be terminated.
Essential items to cover include:
Contract start and end dates: Or provisions for automatic renewal.
Termination for cause: Define what counts as a breach and how it can be cured.
Termination for convenience: Whether either party can exit the agreement without cause, and what notice is required.
Obligations after termination: Such as final payments, return of property, or confidentiality.
In business law, termination clauses prevent accusations of wrongful breach and give parties a roadmap for exiting the relationship cleanly.
Dispute Resolution Mechanisms
No matter how carefully we draft a contract, disputes may still arise. Including a clause that explains how to resolve disagreements before turning to litigation can save time, money, and stress.
Options to include in a dispute resolution clause:
Mediation requirement: Before either party files suit, they must attempt mediation with a neutral third party.
Arbitration provision: Binding arbitration can be faster and more private than going to court.
Jurisdiction and venue: Specify where disputes will be heard and under which state’s laws.
For clients doing business across multiple states or with international partners, this clause becomes even more critical.
Confidentiality and Non-Disclosure
Many businesses share sensitive information during the course of a contract—financial records, trade secrets, customer data, or business strategies. A confidentiality clause protects that information from being disclosed or misused.
Elements of a solid confidentiality clause:
Definition of confidential information: Identify what data is protected.
Limits on disclosure: Prohibit sharing except with authorized individuals.
Obligations after termination: Require the return or destruction of sensitive materials.
Time period of protection: Commonly ranges from two to five years after the contract ends.
Incorporating this clause can help a business maintain its competitive edge and reduce exposure if relationships sour.
Intellectual Property Ownership
If your contract involves design, software development, content creation, or research, an intellectual property (IP) clause is essential. It clarifies who owns the work's product and what rights each party holds after the contract ends.
Points to include in an IP clause:
Ownership rights: Whether the client owns the work product or the creator retains ownership.
Licensing terms: If one party retains ownership but grants the other party usage rights.
Limitations on use: Preventing the use of materials outside the agreed scope.
In business law, failing to address intellectual property up front often leads to disputes over control and licensing. A proactive clause eliminates that ambiguity.
Indemnification Obligations
Indemnity clauses protect one party from liability arising out of the other's actions or negligence. While they can be tricky, they’re critical for managing risk.
Effective indemnity clauses should cover:
Scope of indemnification: Identify which actions or claims are covered.
Responsibility for legal costs: Define who pays for defense and settlements.
Notification requirements: Outline how and when one party must inform the other of a claim.
By including an indemnification clause, we create accountability for actions that could harm the business or its reputation.
Force Majeure and Uncontrollable Events
Sometimes, circumstances beyond anyone’s control prevent a contract from being fulfilled. A force majeure clause addresses this possibility, allowing parties to suspend or delay performance without liability.
Force majeure clauses typically include:
Covered events: Natural disasters, pandemics, labor strikes, government actions, etc.
Obligations during the event: Such as notice or reasonable efforts to resume performance.
Consequences: Whether the contract is paused, modified, or terminated.
This clause became especially relevant during the COVID-19 pandemic, and in business law, it’s now considered essential protection for both parties.
Non-Compete and Non-Solicitation Agreements
If a contract involves hiring, partnerships, or long-term service relationships, we often recommend including restrictive covenants to protect business interests.
These clauses should be:
Reasonably limited in scope: In terms of time, geography, and industry.
Clearly defined: Specify what counts as competition or solicitation.
Enforceable under state law: Some jurisdictions limit or prohibit certain restrictions.
While these clauses may not be needed in every agreement, they’re valuable in scenarios where proprietary relationships, training, or trade secrets are involved.
Assignment and Delegation Provisions
To avoid surprises, a contract should also clarify whether either party can transfer their rights or obligations to someone else. This clause becomes especially important in mergers, acquisitions, or third-party outsourcing situations.
We suggest addressing:
Whether assignment is allowed: And if so, under what conditions.
Restrictions on subcontracting: Especially in service contracts.
Notification requirements: So the other party knows who they’ll be dealing with.
With business law, clear assignment language helps preserve the integrity of the original agreement even as business needs evolve.
Speak to a Business Law Attorney
A clear, well-drafted contract is the first step in preventing costly disputes. If you need help drafting or reviewing a contract, reach out today.
At Paul D. Cass, Attorney at Law, I help business owners throughout Los Angeles, California, including Burbank, Inglewood, Glendale, Pasadena, and across Los Angeles County, Orange County, Riverside County, and San Diego County.