Business Contract Checklist: 12 Clauses Founders Should Check

A contract can look perfectly reasonable until you ask a different question:

What happens if the deal does not go according to plan?

That is where many of the important clauses begin to matter.

Before signing a business contract, founders should understand not only the price and deliverables, but also who carries the risk if payment is delayed, work goes wrong, intellectual property is disputed, confidential information leaks, or one party wants to leave.

Under Indian law, the wording also does not operate in isolation. The Indian Contract Act, 1872 governs matters including validity, performance, breach, damages, indemnity and certain agreements that the law will not enforce.

So rather than reading a contract from page one to the signature block, review it around the decisions that could affect the business.

Here are 12 areas worth checking.

1. Scope: What exactly are you promising?

Start with the commercial core.

The contract should make it reasonably clear:

• what each party must provide;

• what is outside the scope;

• applicable specifications or service levels;

• deadlines and milestones;

• dependencies on the other party;

• who accepts or rejects deliverables; and

• what happens when the scope changes.

This matters because ambiguity at the beginning can become a dispute later. Section 29 of the Indian Contract Act provides that agreements whose meaning is not certain, or capable of being made certain, are void.

For a founder, however, the practical problem usually arises well before that threshold: a vague scope makes it difficult to establish whether performance was actually completed.

Ask: Could an independent person read the agreement and determine exactly what we have to deliver?

2. Payment: What has to happen before you get paid?

“₹5 lakh payable in 30 days” is not enough information.

Check:

• when an invoice can be raised;

• whether payment runs from the invoice date, receipt or acceptance;

• whether payment depends on a milestone or customer approval;

• taxes and withholding;

• reimbursable expenses;

• disputed-invoice procedures;

• late-payment provisions; and

• any right to set off or withhold amounts.

The important question is often the payment trigger.

If payment becomes due only after the customer “accepts” the work, for example, the agreement should ideally make clear how acceptance occurs and whether the customer has a defined period to identify deficiencies.

If your business qualifies for protection under the MSMED Act, 2006, separate statutory delayed-payment rules may also become relevant. Those rights should not be confused with the ordinary payment mechanics negotiated in the contract.

Ask: What exact event converts our work into an amount legally due?

3. Term and renewal: How long are you actually committing?

Check the commencement date, initial term and renewal mechanism.

Watch particularly for automatic renewal.

A one-year contract may effectively continue for another year unless notice is given within a specified window. That may be commercially acceptable, but it should be deliberate.

Also check whether pricing, minimum commitments or other obligations change when the contract renews.

Ask: If nobody remembers this contract six months from now, what happens automatically?

4. Termination: Can you leave when the relationship stops working?

A contract may be easy to enter and surprisingly difficult to exit.

Distinguish between:

Termination for cause: one party can terminate because of specified breach, insolvency or another defined event.

Termination for convenience: a party can terminate without proving breach, usually by giving notice.

Then check:

• notice periods;

• cure periods;

• termination charges;

• outstanding payment obligations;

• return of property or data;

• transition assistance; and

• clauses that survive termination.

Also look for asymmetry. If the customer can terminate on 30 days' notice but you are locked in for the entire term, that is a commercial risk worth understanding before signing.

Ask: If we need to exit this relationship six months from now, what will it cost us?

5. Representations and warranties: What facts are you promising to stand behind?

Representations and warranties can create liability when a statement turns out to be inaccurate or a promised standard is not met.

A technology company, for example, should be cautious about promising absolute outcomes such as uninterrupted or error-free performance if the service cannot realistically meet that standard.

Review:

• what you are representing as true;

• what performance you are warranting;

• whether the promise concerns matters within your control;

• how long the warranty lasts; and

• what remedy follows from breach.

The wording should reflect what the business can actually deliver, not simply what appeared in the counterparty's standard contract.

Ask: Are we contractually promising something our operations cannot reliably guarantee?

6. Indemnity: Which losses are you agreeing to take responsibility for?

An indemnity allocates specified risks between the parties. Sections 124 and 125 of the Indian Contract Act contain the statutory framework for contracts of indemnity.

But the commercial exposure depends heavily on the wording.

Check:

• what triggers the indemnity;

• which losses and claims it covers;

• whether it applies to third-party claims, direct claims or both;

• whether the obligation is mutual or one-sided;

• who controls the defence of a third-party claim;

• whether consent is required before settlement; and

• whether the indemnity falls inside or outside the liability cap.

Common indemnities may concern intellectual-property infringement, confidentiality breaches, regulatory violations or third-party claims.

Do not read the indemnity clause alone. Read it together with the limitation-of-liability clause.

Ask: What event could make us responsible for someone else's loss, and is there a financial ceiling?

7. Limitation of liability: What is the maximum downside?

This clause determines how much contractual exposure a party is attempting to accept or exclude.

Look beyond the headline cap.

A contract might state that liability is limited to the fees paid under the agreement, but then exclude several important categories from that cap.

Check:

• the amount of the cap;

• whether it is mutual;

• the period used to calculate it;

• excluded categories of loss;

• carve-outs from the cap;

• whether indemnities are capped;

• treatment of confidentiality and IP claims; and

• whether different liabilities have different caps.

Indian contract law also places limits on how contractual damages operate. Sections 73 and 74 of the Contract Act govern compensation for breach and compensation where a sum is stipulated for breach. A number written into a contract should therefore not automatically be assumed to be recoverable exactly as written in every case.

Ask: In a realistic worst-case scenario, how much money could this agreement expose the company to?

8. Intellectual property: Who owns what existed before the deal—and what gets created during it?

This is particularly important for software, design, consulting, marketing, content and product-development agreements.

Separate:

Background IP: technology, code, templates, processes, brands or materials a party already owns.

New IP or deliverables: material created specifically under the contract.

Then determine whether the agreement creates an assignment, a licence, or some combination of the two.

For copyright, this deserves particular care. Section 19 of the Copyright Act, 1957 requires an assignment to be in writing and signed by the assignor or authorised agent, and requires identification of the work and specification of the rights assigned, duration and territorial extent.

A clause saying simply that “all IP belongs to the customer” may therefore deserve considerably more scrutiny than its length suggests.

Ask: After this relationship ends, what can each party still own, use, modify, license or sell?

9. Confidentiality: What information must actually be protected?

Check what counts as confidential information.

An effective clause should be considered in light of:

• what information is covered;

• permitted purposes of use;

• who may receive it;

• exceptions for information already known or publicly available;

• legally compelled disclosure;

• required security measures;

• duration of confidentiality; and

• return or destruction obligations.

Also ask whether the obligation is operationally possible.

A clause is of limited practical value if your employees, vendors or systems routinely handle the information in ways inconsistent with what the company has promised.

Ask: Can our team actually comply with this clause in day-to-day operations?

10. Data protection and security: Whose data will move through the relationship?

If personal data is involved, confidentiality is not the whole analysis.

Identify:

• what personal data will be shared;

• why it is being processed;

• which party decides the purpose and means of processing;

• whether vendors or subprocessors are involved;

• security obligations;

• breach-notification obligations;

• deletion or return requirements; and

• any cross-border element.

India's Digital Personal Data Protection Act, 2023 and the Digital Personal Data Protection Rules, 2025 are being brought into force through a phased commencement framework. Contract drafting should therefore account for the provisions applicable at the relevant time rather than treating the entire framework as having commenced on one date.

The contract also should not promise security standards that the business does not actually maintain.

Ask: What data are we receiving or sharing, and can we fulfil every data-related obligation we are accepting?

11. Restrictive clauses: What are you agreeing not to do?

Look for clauses dealing with:

• exclusivity;

• non-compete obligations;

• non-solicitation;

• restrictions on dealing with customers or suppliers; and

• restrictions on hiring personnel.

These provisions can have consequences beyond the particular transaction.

They also require legal scrutiny in India. Section 27 of the Indian Contract Act provides that agreements restraining a person from exercising a lawful profession, trade or business are void to that extent, subject to the statutory exception concerning sale of goodwill. The legal treatment of a particular restriction nevertheless depends on its nature and context.

So neither side should assume that every restrictive covenant is enforceable merely because both parties signed it.

Ask: Does this contract restrict business we may want to conduct with somebody else?

12. Dispute resolution and governing law: If things go wrong, where do you actually fight?

This clause often receives attention only after a dispute begins.

By then, it is too late to renegotiate.

Check:

• governing law;

• courts with jurisdiction;

• whether disputes go to arbitration;

• the seat of arbitration;

• number and appointment of arbitrators;

• institutional rules, if any;

• language;

• pre-arbitration negotiation or mediation requirements; and

• notice mechanics.

Under the Arbitration and Conciliation Act, 1996, an arbitration agreement must satisfy statutory requirements. The seat and drafting of the arbitration mechanism can have significant procedural consequences.

For cross-border contracts, this becomes particularly important because governing law, arbitration seat and the location of the parties are different questions.

Ask: If the other party breaches tomorrow, what exactly is the first legal step the contract requires us to take?

One final check: do the 12 clauses work together?

This is where checklist-based review can fail.

A reasonable-looking liability cap may be undermined by an uncapped indemnity.

A strong payment clause may matter less if the customer has an unrestricted termination right before the payment milestone.

An IP clause may transfer deliverables while another clause quietly grants rights over your pre-existing technology.

A termination clause may let you exit while confidentiality, data-return, indemnity and payment obligations continue afterwards.

So the final review should not be:

“Are these 12 clauses present?”

It should be:

“What happens when these clauses operate together?”

Before signing, reduce the agreement to four questions:

1. Performance: What exactly must we do?

2. Money: When do we get paid, and what can prevent payment?

3. Risk: What could make us liable, and how large can that liability become?

4. Exit: How do we leave, and what survives after we do?

If those four answers are clear, the contract is much easier to evaluate as a business decision.

If they are not, the signature page is probably not the place to start.

This article provides general legal information and does not constitute legal advice. Contractual rights and enforceability depend on the agreement, transaction, applicable law and surrounding facts.