Today, I'm going to share with you 5 contractual clauses that you must include in each of your legal agreements to keep your online business legally legit. You ready? Let's do this.
If you were just getting started in business, chances are you're going to need a contract. And if you need a contract, you're going to need to know what to put into that contract. And today, I want to talk with you about the five clauses that you must have in every contract you enter into as a business owner.
Now, chances are if you're in business, you want to make sure that you're playing by the rules. You want to make sure that you're not making any mistakes. You want to make sure that you're doing what you're supposed to do for your clients. And the people you hire to do work for you are doing what they should do for you. And to make sure that there's no uncertainty about all of these things, it's really important that you have a rock solid contract in place.
There's many different types of contracts. You could have an independent contractor agreement. You could have a group coaching contract that I'm working on right now for a client. Or you could have a one-to-one client agreement, which is one of the most common types of agreements you're going to have.
Regardless of what type of contract you're going to have though, it's important that you have all the proper legal clauses in place in that contract.
There are five main clauses that every contract needs to make sure that number one, the contract is legal. And umber two, that it's going to be binding on both you and the other person that's entering into that contract. By having these clauses in place, you're giving yourself the best opportunity to be able to enforce that contract should you need to do so if something goes awry down the road.
And if you don't have these contracts in place, you run the risk of number one, having an invalid contract, and number two, not being able to get that contract enforced should you need to do that. So let's talk about these five clauses real quick.
Must Have Contract Clauses #1 – Identification of the Parties
So let's go ahead and start with clause number one, and that is the identification of the parties. This seems so basic. It seems like something that everyone should just do, but it's something that a lot of people really mess up.
You need to have a paragraph at the very beginning of the contract that states who is entering into the legal agreement. So in other words, when I enter into a contract, it's typically going to be my business. It's going to be my law firm, or it's going to be another business that I might own that's entering into that contract, or sometimes it's going to be me as an individual person.
Then conversely, I want to make sure that the other party is listed correctly. So am I hiring an individual to do some work for me? Am I hiring an LLC to do some work for me? Am I hiring a corporation to do some work for me? Who is it that I'm hiring to do work for me or who is it that's hiring me to do work for them?
It's very important that you have the proper party listed in the contract. A lot of people mess this up and they just put the individual names.
Now, if you do that, that's a really easy way to pierce the corporate veil if something should happen later on down the road. And there's a mistake or a breach of contract lawsuit happens, somebody might end up suing you as opposed to suing your business. And so that's a really important first clause that you need: an introductory paragraph that just outlines exactly who the contract is with, who the parties to the contract are.
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Must Have Contract Clauses #2 – Legal Consideration
If you have a legal agreement, you really need to have in your contract is what's called the consideration clause. Now, consideration is a really fancy legal term that basically means what you are giving up to enter into the contract or what benefit you are getting from the contract in exchange for what somebody else is either giving up or the benefit they're receiving by entering into the contract.
In many cases, what's happening is what you're giving up is either going to be money or your services and your time that you're going to be putting into the work that you need to do for the contract versus what the other person is doing is either paying you money or providing you some sort of service or good or something else that's going into the contract.
It's really important that you have a clause that's going to talk about who is doing what for whom and how much they're getting paid. That is typically the way consideration works.
And it's really important that you don't mess this up and that you're very clear about exactly how much somebody is going to get paid and exactly what they're going to be doing for that payment. In as much specificity as possible, you want to list out all of the various services or products that somebody is going to be providing in exchange for payment. And then you want to indicate how much money is going to be changing hands and when that money is going to change hands.
So for example, if you're a freelancer, maybe you've got a fee that you're going to be generating from the contract, a total fee, maybe a $1000, maybe $5,000, whatever it might be. How are those payments going to be made? Is it all going to be paid upfront? Are there going to be monthly payments? Are you going to pay half now and half at the conclusion of the contract? How exactly are you going to get paid or are you going to be paying the other person? In exchange, what is the work that's going to be done? How much effort is going to go into it?
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I recently hired somebody to do some design work on my website. She basically gave me a free day. She gave me a single day where she was going to do all the work for my webpage that I needed her to do. And then, there was going to be some additional revisions that were going to happen after the fact.
I was responsible for giving her a number of assets in the form of images and sales copy that I wanted her to use and different things of that sort. She was responsible for putting together the webpage and then drafting any edits that I ask of her. And that was all going to be done in one day.
And I paid her in one single lump sum in this case, because the fee was not so great that it would need to be half upfront and half later. Typically the lower the fee is the more you're going to pay upfront. The higher the fee is then you're probably going to want to break those into payments.
That was all spelled out directly in the contract that I entered into with her. Very clear, no room for confusion about what somebody was going to do for who and how much it was going to get paid. It was just there. And that's the benefit.
And if you don't have that clarity in your contract, then that could cause you a lot of problems later on specifically if somebody doesn't do the work they're supposed to be doing, or if somebody doesn't pay the amount that they're supposed to be paying. That makes sense? I think that makes sense.
Must Have Contract Clauses #3 – Who Will Own Intellectual Property
Third clause that you have to have for a legal agreement is you really need to outline who is going to own the intellectual property. A lot of times, especially when services are being exchanged, somebody is going to be doing some work. It might be drafting, web pages, web design, graphics, images, anything like that. It needs to be crystal clear who is going to own that final work product.
For example, I previously had a video editor working for me doing the video edits for this channel. And it was clear from our contract that after I paid her for those videos that I would own the intellectual property for that. So for example, if you decide to hire somebody to do some ghost writing for you, you want to make sure that once you pay that person, that you're going to own all the rights to whatever it is that they have created on your behalf.
Same is true if it's video. Same is true if it's a podcast. Whatever medium you might need for your website, you want to make sure it's crystal clear about who is going to own the rights to that intellectual property.
Related Resource: To check out our legal contract templates, click here.
Must Have Contract Clauses #4 – Termination Clause
The fourth clause that you absolutely must have in your contract is a termination clause. Now this is kind of a way to get out of the contract, basically. Under what circumstances is the contract going to end?
In some cases, it's after a number of payments have been made and the work has been done. It's very clear that the contract is going to be over. But what happens if you need to end the contract before the work has actually been done?
Well, in that case, you need some sort of termination clause. And that termination is going to dictate is, can you terminate with a notice period? Can you terminate if the work is not done appropriately or professionally? Can you terminate for some other reason? Or can you terminate if there's just been a breach of the contract in some way?
Let's say you are a web designer and your client is consistently paying you late. Is that enough to terminate the contract with them? Maybe it is, maybe it isn't, but you need to make sure you spell out in that termination clause exactly when and under what terms you may terminate the contract with this person.
Then along those lines, is there going to be a refund payable? Sometimes there's no refunds. Other times there are going to be refunds. But you want to make sure that's also included in the termination provision.
Failure to include these type of provisions in your contracts can lead to a lot of, again, uncertainty and nervousness later on, because you don't know whether or not the contract, what your rights and obligations are under the contract.
I mean, imagine if you're the person that was doing a bunch of work and then the person that was supposed to pay you for that work just decided to terminate the contract and not pay you for the work that you had done. That would be a problem. But you definitely want to make sure you have that termination clause in your contract to outline who can terminate the contract, and under what terms they can do that, and under what circumstances they can do that.
Must Have Contract Clauses #5 – Venue Clause
Which leads us to the fifth. If you have a legal agreement, one of the most important elements or clauses that you need to have in your contract, and that is a venue clause, or choice of forum, choice of jurisdiction. It's called all sorts of different things.
Basically, it's the clause, the part of the contract where you basically say, what law is going to govern the contract, number one. And number two, where would any disputes be brought? For me, every single contract I sign where I'm hiring somebody to do work for me, it has a venue provision in there that says that any lawsuit that's going to be brought must be brought in Wake County, North Carolina where I live, because that's the most convenient one for me.
You want to make sure that you list out your local jurisdiction in your contracts so that somebody if they live in California, and like I said, I live in North Carolina and they decided they want to sue me, they can't sue me in California courts. That would be bad. That would be expensive, time consuming. I might have to fly out there. That's a big problem. We don't want that happening.
So you want to make sure that you include that venue provision in the contract that outlines exactly where lawsuits would need to be brought if and when there was going to be a breach of contract lawsuit.
Now, I will tell you breach of contract lawsuits and these types of situations for smaller contracts are going to be rare. That's not to say that they're unheard of, they do happen. So you definitely want to make sure you have all these clauses in place to protect yourself in the event that there is going to be a problem down the road. What does this mean for you once you have these clauses in place? Well, it means that you've got almost a fully valid contract. There's a lot of other clauses and provisions that you may need in contract. I'll do those in another video.
But for now, let's go back through these five clauses that you need:
- an introductory clause,
- a consideration clause,
- intellectual property clause,
- a termination clause;
- and a venue clause.
You get those in place and you're nine-tenths of the way to having a A+ contract that's going to work for you. Check out this other video I've done right here. That's going to teach you even more that you need to know about contracts and not messing up your LLC. Thanks so much for watching. Have a great day!