The 7 Points to Review in Your First Major Contract
Signing your first major contract —with a client, supplier or partner— is a milestone. But a poorly reviewed document can tie you to unfavourable terms, impossible deadlines or clauses that limit your growth. In this article we give you the 7 points to review in your first major contract before signing, with a practical focus for startups and founders.
In short
- Subject matter and scope of the contract: what is delivered and what is received.
- Price, payment method and payment terms.
- Term, renewal and termination conditions.
- Confidentiality, intellectual property and data.
- Limitation of liability and indemnities.
- Jurisdiction, governing law and dispute resolution.
- Other critical clauses depending on the type of contract.
1. Subject matter and scope of the contract
The subject matter of the contract defines what each party commits to do or deliver. It should be clearly described to avoid misunderstandings and later claims. In a commercial contract, check that the specific products or services, quantities or scope (e.g. hours, deliverables, SLA) are set out and that there are no open or ambiguous obligations.
What to check: Clear description of deliverables, explicit exclusions if something is out of scope, and the possibility of written extension (addendum or annex) if the project grows.
2. Price, payment method and payment terms
The price must be defined (fixed amount, hourly, milestone-based, variable by results, etc.) and the payment method must be explicit: transfer, term (30, 60, 90 days), monthly or project-based invoicing. For a startup, long payment terms can create cash flow pressure; it is advisable to negotiate or align expectations from the start.
Important: Check for late payment penalties, default interest and in which currency invoicing and payment are made. If the contract is in another currency, consider exchange rate risk.
3. Term, renewal and termination conditions
It must be clear when the contract starts and ends, whether it renews automatically and with what notice it can be terminated. Tacit renewal clauses (e.g. "renewed for one year if neither party gives notice 3 months in advance") are common but can tie you in if you do not keep track. Also review grounds for early termination (breach, agreement, force majeure) and effects on termination (return of materials, surviving confidentiality, etc.).
Tip: Note in your calendar the deadline to give non-renewal notice if you do not want to renew. Many disputes arise from having "missed" the date.
4. Confidentiality, intellectual property and data
Contracts with clients or partners often include confidentiality obligations: what information is confidential, for how long and what exceptions apply. If you provide developments, code or creations, it must be clear who owns the intellectual property: whether it is assigned, licensed or retained by you. Where personal data is processed, ensure the contract covers data processing and GDPR compliance (processor, DPA if applicable).
- Confidentiality: Scope, duration and exceptions (public information, what you already knew, what a third party legitimately discloses to you).
- Intellectual property: If you assign rights, limit it to what is necessary (territory, use, exclusivity or not) and put it in writing.
- Personal data: Processor/controller, instructions, subprocessing and security measures.
5. Limitation of liability and indemnities
One of the most important clauses: how far you can be held liable in case of breach, error or damage. Without a cap, you could be liable with all your assets. It is common to limit liability to the contract value or a multiple (e.g. 12 months of fees) and to exclude indirect damages, lost profits or data loss. Also review indemnity clauses: what you agree to indemnify (third-party claims, IP, etc.) and up to what amount.
Warning: If the other party demands unlimited liability or very broad indemnities, negotiate a cap. For early-stage startups, accepting unlimited liability can be an existential risk.
6. Jurisdiction, governing law and dispute resolution
The contract usually sets the governing law (e.g. Spanish) and the courts that will resolve disputes (or arbitration). For a Spanish startup, having Spanish law and Spanish courts is usually more predictable and cost-effective. If you accept jurisdiction in another country, consider the cost and complexity in case of dispute.
Some contracts include arbitration clauses. Arbitration can be faster and confidential but is often more expensive. Check whether it is mandatory or voluntary and in which seat and under which rules it would be conducted.
7. Other critical clauses depending on the type of contract
Depending on whether it is a service, supply, collaboration or distribution contract, the following may be relevant: non-compete, exclusivity, subcontracting, force majeure, assignment, notices, entire agreement (written prevails over verbal) and amendments (in writing only). In contracts with investors or funding rounds, coordination with your legal advisory for startups is essential; for recurring commercial contracts, having a well-reviewed base saves you risk and time.
Summary: checklist before signing
- Clear subject matter and scope with no ambiguities.
- Price, payment method and payment terms defined and manageable for your cash flow.
- Term, renewal and termination with notice periods you can meet.
- Confidentiality, IP and personal data clearly defined.
- Limitation of liability and indemnities with a reasonable cap.
- Governing law and jurisdiction that you can manage.
- Other clauses (exclusivity, non-compete, etc.) reviewed and accepted.
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