You sign contracts more often than you think. Every SaaS tool your team uses, every office lease, every supplier agreement, every contractor you hire - even when you attend a marketing event or host a meeting - there's a contract behind it. And often, you jump forward to the signature page and hope for the best.
I get it. Contracts are long, dense, and written in a language that feels designed to confuse you. But underneath that language are clauses that can cost you real money, lock you into bad deals, or leave you without protection when something goes wrong.
Here are 10 clauses that actually matter, but explained the way I'd explain them to a friend starting a business.
1. Limitation of Liability
What it means: This clause caps the maximum amount one party can owe the other if something goes wrong. Think of it as a ceiling or a cap on damages.
Why it matters: Without a cap, a single dispute could expose your business to unlimited damages (think - money that you have to pay out of your pocket or through insurance). Most contracts cap liability at the total fees paid under the agreement or during some specific period (i.e. previous 12 months) but some don't have a cap at all, and others set it unreasonably low (or high).
What to look for: Is there a cap? Is it mutual (applies to both sides equally)? Is it set at a reasonable amount relative to what you're paying?
I have seen a wide variety of limitation of liability clauses during my career as in-house legal counsel for multiple SaaS companies. There are customers that have required a limitation of liability in the tens of millions and others that are content to accept a cap set at the fees they have paid in the last year. It is always important to take into account the types of damages that are included, excluded, and the nature of the services or products being purchased.
2. Indemnification
What it means: Indemnification is a promise by one party to cover the other's losses from certain types of claims, usually third-party lawsuits. If you indemnify someone, you're agreeing to pay their legal costs and damages if a specific kind of claim comes up. Some indemnification clauses also require that the party with the obligation defend the claim (i.e. hiring attorneys and paying all costs to actually defend the claim) as opposed to only reimbursing the other party for the costs of doing it on their own.
Why it matters: This is one of the most expensive clauses in any contract if it ever gets triggered. Broad indemnification can put you on the hook for things that aren't really your fault. If you are the customer, it is important to ensure the supplier or service provider indemnifies you, so that you have recourse if you get sued because of something that they did.
What to look for: Is indemnification mutual? Is the scope narrow (just your own actions) or broad (covering the other party's negligence too)? Are there any caps? Are you also required to handle the entire defense of the claim?
3. Termination for Convenience
What it means: This gives one or both parties the right to end the contract early for any reason, with notice. No breach required - you just want out.
Why it matters: If your contract doesn't have this, you could be stuck paying for a service you no longer need for the entire term. On the flip side, if only the other party has this right, they can walk away while you can't. If you rely on a recurring revenue model, allowing the other party to exit early for convenience has revenue recognition implications as well.
What to look for: Does either party have this right? Is it mutual? What's the notice period? Is there an early termination fee?
Depending on the services being provided, it may be common to have this right. However, in the case of SaaS, vendors will almost universally push back on allowing customers to terminate for convenience. This is because SaaS vendors rely on recurring revenue and there are accounting rules against recognizing revenue that is not certain. Allowing a customer to terminate at any time without penalty causes revenue recognition issues and accordingly, SaaS vendors will push back on this consistently. You can try to negotiate for a penalty of less than the full amount of fees contracted through the end of the term, but it may be an uphill battle.
4. Auto-Renewal
What it means: The contract automatically renews for another term unless you cancel before a specific deadline.
Why it matters: Miss the cancellation window by one day and you could be locked in for another year. Some contracts give you 30 days notice to cancel. Others give you 15. Some don't specify at all.
What to look for: Is there auto-renewal? What's the notice window to cancel? Set a calendar reminder well before the deadline. Want to renegotiate terms - make sure to do so before the auto-renewal notice period has passed.
5. Consequential Damages Waiver
What it means: Consequential damages are the ripple effects of a breach — lost profits, lost customers, business interruption. These are often hard to predict and not foreseeablre. A waiver means neither party can claim these indirect damages from the other.
Why it matters: These waivers are standard in commercial contracts and are generally fair, but they often have exceptions for things like confidentiality breaches, IP infringement, and indemnification obligations. A waiver with no exceptions at all is one-sided and could prevent a party from being made whole. There are certain damages, like those associated with confidential information, that are almost always consequential and should therefore be carved out as an exception.
What to look for: Are consequential damages waived? If so, are there carve-outs for the important stuff (mainly breaches of confidentiality)?
6. Governing Law and Venue
What it means: Governing law determines which state's laws apply to the contract. Venue determines where disputes are heard (i.e. which courthouse or arbitration body).
Why it matters: If you're a small business in Utah and the contract says disputes must be resolved in New York under New York law, you're at a practical disadvantage. Flying to New York for a contract dispute might cost more than the dispute is worth.
What to look for: Where are disputes resolved? Is it practical for you? Can you negotiate for your home state or a neutral location?
7. Assignment
What it means: Assignment is the right to transfer the contract to someone else, usually through a sale or acquisition.
Why it matters: If your vendor can assign the contract without your consent, you could wake up one day and find your contract is now held by a company you've never heard of, or worse, a competitor. Your data goes with it. Many vendors will agree to limits on the right to assign, such as when they are acquired by a competitor, in which case you should be able to terminate the contract.
What to look for: Can either party assign without consent? Is there a carve-out for affiliates? Do you have the right to terminate if there's a change of control?
8. Confidentiality
What it means: Confidentiality provisions protect the information the parties share with each other during the contract, such as pricing, business strategies, customer data, proprietary processes.
Why it matters: If confidentiality is one-sided, the other party can share your information without restriction. And watch out for 'residuals' clauses, which let the other party use anything their employees remember, even after the contract ends. This type of clause can cause ugly disputes down the road because proving someone remembered something and did not actually use written confidential information can be difficult.
What to look for: Is it mutual? How long does it last? Is there a return-or-destroy obligation when the contract ends? Are there non-solicitation or non-compete clauses hidden in the NDA?
9. IP Ownership and Data Rights
What it means: These clauses determine who owns the data you upload, the content you create using the service, and any intellectual property generated during the relationship.
Why it matters: Some contracts quietly give the vendor ownership of your data or the right to use it for their own purposes, including for training AI models. Your business data is an asset. Make sure you keep it and closely control how it can be used by vendors..
What to look for: Do you retain ownership of your data? Can the vendor use it beyond providing the service? Is there any AI/ML training language?
10. Price Escalation
What it means: This gives the vendor the right to increase prices, either during the contract term or at renewal.
Why it matters: A vendor that can raise prices mid-term with no cap and short notice can blow up your budget. Price increases at renewal are more standard, but you should still understand the terms and ask for a cap.
What to look for: Can prices increase during the term or only at renewal? Is there a cap? How much notice do you get? Can you terminate if you don't accept the increase?
The Bottom Line
You don't need a law degree to understand these clauses. You just need to know where to look and what questions to ask. Next time you're about to sign a contract, scan for these 10 provisions first. If something looks off, ask about it — or get a professional review.
PlainLaw analyzes contracts for these exact issues — in plain English, in under a minute. Try it free at getplainlaw.com.