Many entrepreneurs struggle when it comes to reviewing contracts. Here’s a two step process to make it a little easier for you.
At the outset, you should look at things from a high level. Then, dive deep into the nitty gritty.
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1. High Level Review
At a high level you can use these five steps to make sure the contract accurately reflects the deal terms as you understand them:
- Step 1: Make sure you understand what you expect and want out of the contract.
- Step 2: Review the contract’s action sections to make sure the deal terms are properly documented.
- Step 3: Read the rest of the contract (all of it) to make sure everything else aligns with your expectations (see the checklist below).
- Step 4: Consider whether any important terms are missing.
- Step 5: Consider your markup options and negotiate your change requests. This can be in the form of a conversation with the other party, an email outlining your requests, a redline version of the contract, or in extreme situations, responding with an entirely new contract.
2. Deep Dive: A Contract Review Checklist
When reviewing the contract’s terms you might consider using the checklist below to make sure you hit the key points:
□ Are the parties properly identified?
□ Are any capitalized terms not defined?
□ Are the signature blocks correct?
□ Are references to exhibits and schedules correct? Are they attached?
□ Have you double checked all mathematical formulas?
- Term & Termination
□ Is the term and expiration identified?
□ Can you terminate early? If so, how?
□ Can the other party terminate early? If so, how?
□ What are the rights of the parties following an early termination?
- Action Terms
□ Are your performance obligations accurate?
□ Are the other party’s performance obligations accurate?
□ Are the payment terms accurate?
□ Are the payment dates and payment methods accurate?
□ Are expenses reimbursable? If so, how?
- Representations & Warranties
□ Are your representations and warranties accurate?
□ Are you asking the other party for sufficient representations and warranties?
- Other Legal Terms (depending on your circumstances, these may not be necessary)
□ Is there a well-drafted NDA provision?
□ Is there a non-compete and/or non-solicitation?
□ Who will own the intellectual property created under the agreement?
□ Are indemnifications provided?
□ Is insurance required? Should it be?
- Boilerplate Provisions
□ Are the “boilerplate” provisions present? (Learn more about “boilerplate” provisions)
□ Do you agree to the governing law, jurisdiction, and venue?
□ Do you want an attorneys fee provision?
□ If the agreement is an MSA to which SOWs will be attached, is it clear which precedes the other if the MSA and SOW have conflicting terms?
After reviewing your contract, you should consider how to negotiate it. Check out this post for more: How to Negotiate a Contract.
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*This article is very general in nature and does not constitute legal advice.