How do I draft a strong contract for my startup? The 11 clauses that matter

Should I use my own paper?

Yes, whenever you have the leverage. The party whose draft is used starts every negotiation from its own positions, and you'll negotiate faster from a template you know. Early on, large customers and vendors will insist on their paper. Then your job shifts to reviewing their draft, focusing on the clauses below. Before you redline, work out why the other side wants this deal. A large company that needs your product to enter a new market, or that is replacing a vendor that failed it, will often move further than its first draft suggests. A small pilot with a giant usually means accepting more of its paper. See How Do I Manage Risks When Negotiating Startup Customer Contracts?

What goes in a startup contract?

The liability cap and the indemnities are where most of the real risk sits. The usual carve-outs from the cap are confidentiality breaches, indemnified IP claims and gross negligence or willful misconduct. Customers increasingly ask for a higher "super cap" for data breaches. That can be reasonable, but it should still be a number, not unlimited.

How do I avoid a clause that looks harmless?

Read definitions closely, because that's where scope expands. A common example: a customer asks to add "Provider will not provide the services to any competitor of Customer," with competitor defined as anyone offering "products or services similar to Customer's." That reads like a small courtesy. In practice it can bar you from selling to an entire market segment, because nearly every company in the customer's industry offers something similar. If you agree to any restriction like this, name the specific competitors and set an end date.

The same goes for most-favored-customer pricing, exclusivity, source code escrow and unlimited audit rights. Each can be fine in context, but each is a business decision, not boilerplate.

Should I use a master agreement and order forms?

Usually, yes. Put the terms that rarely change in a master agreement, put pricing, quantities, term and deal-specific terms in an order form, and put product details in exhibits such as a service level agreement, data processing agreement or product-specific terms. When you launch a new product or change your support terms, you update an exhibit rather than renegotiating every contract. Make sure the agreement says which document controls if they conflict. See Service Level Agreement (SLA).

For a large or unusual deal, such as a significant license, partnership or joint development, agree on a short term sheet first. For a standard customer order, it's overkill.

Which document controls when the MSA and an order form disagree?

The one your contract says controls. Without an order-of-precedence clause, a court reading two conflicting documents will try to reconcile them, and where it can't, it generally gives more weight to specific terms than to general language, and to separately negotiated terms than to standard ones. Order forms and statements of work are usually the more specific, deal-by-deal documents. That means a line a salesperson added to an order form, such as "Customer owns all deliverables" or "Provider will be liable for all losses," can override the IP and liability terms you negotiated carefully in the master agreement.

A short clause fixes this. A common version reads: "If this Agreement conflicts with an Order Form or Statement of Work, this Agreement controls, unless the Order Form or Statement of Work expressly states that it modifies a specific section of this Agreement. The Data Processing Addendum controls with respect to the processing of personal data. Terms printed on a purchase order or in a supplier portal have no effect." The last sentence matters with large customers, whose purchase orders and vendor portals often carry their own preprinted terms.

The clause works only if people follow it. Keep order forms to pricing, quantities, term and the few deal-specific items they're meant for, and route any order form that changes the master agreement to whoever owns your playbook. If you're signing a vendor's paper, check its precedence clause too. Many vendors make their online terms, which they can update, control over anything you negotiated.

Who can sign, and can we backdate?

An officer authorized under the bylaws or a board resolution, usually the CEO, signs for the company. Sign in the company's name with your title ("Acme, Inc., by Jane Doe, CEO"), never in your personal name, or you risk being personally bound. For significant contracts, check whether your board needs to approve first. See What Does My Startup's Board of Directors Generally Need to Approve?

Electronic signatures through DocuSign or similar tools are valid for almost all commercial contracts under the federal ESIGN Act and state laws based on the Uniform Electronic Transactions Act. Wet ink is rarely required.

Never backdate a contract. If the parties agreed earlier and are only now signing, write "effective as of" the earlier date, and let the signatures carry the real date they were signed. Backdating can be misleading to auditors, investors and courts. Keep the full executed copy, with signature pages attached, in one place. See How Do I Keep My Startup Legal Documents Organized?

Can I draft contracts with AI?

AI is good at producing a first structure, summarizing a long counterparty draft, flagging missing clauses and explaining unfamiliar terms. It is not reliable on the clauses where the risk sits: liability, indemnities, IP and data. It misses state-law requirements, mixes positions from different kinds of contracts, and produces language that reads well but means something other than what you intended. Use it to get oriented, then have a lawyer draft or review those clauses. Never sign an AI draft that no one with legal training has read.

What do I do after signing?

Signing isn't the finish line. Put every date in the contract on a calendar the day it's signed: renewal and cancellation notice deadlines, price-increase windows, payment and reporting dates, insurance renewals, and the end of any exclusivity commitment. Auto-renewal is the classic trap. Miss a 60-day notice window and you may be locked in for another year.

Then do what you promised, when you promised it. Missing even a small obligation, like a report or a required notice, can give the other side a reason to withhold payment, terminate or decline to renew, and it costs goodwill you will want in the next negotiation. Give one person responsibility for each significant contract, and keep the signed copy where the people doing the work can find it.

Will my contracts survive an acquisition?

Only if their assignment clauses allow it. Read each important contract for three different provisions. A plain anti-assignment clause says neither party may assign the contract without the other's consent. A broader clause also treats a merger, an assignment "by operation of law" or a change of control as an assignment, so selling the company needs consent even if the contract never moves. And a change-of-control termination right lets the other side walk away, or renegotiate, once you're acquired, whatever the assignment clause says.

The deal structure matters too. In an asset sale, every contract has to be assigned to the buyer. In a reverse triangular merger, the most common structure for venture-backed startups, your company survives as a subsidiary of the buyer. The Delaware Court of Chancery held in Meso Scale Diagnostics v. Roche (2013) that a reverse triangular merger generally isn't an assignment by operation of law, but that doesn't help with a clause that expressly covers mergers or changes of control, and courts applying other states' law may see it differently. Licenses of IP to your company need extra care. Under federal law, a nonexclusive patent license can't be transferred without the licensor's consent, even if the contract says nothing about it, and courts have applied the same rule to software licenses.

The fix belongs at signing, when you have leverage, not when a buyer's lawyers are building a consent list. Ask for language letting either party assign the contract without consent to a successor in a merger, an acquisition or a sale of all or substantially all of its business or assets, as long as the successor takes on the contract's obligations. Resist change-of-control termination rights. If a customer insists, limit the right to an acquisition by its direct competitor. See Startup Acquisitions and How Do I Read an Acquisition LOI?

What will investors and buyers look for in my contracts?

At seed, investors usually ask for your material customer, vendor and partner agreements and check that they're signed and in the data room. At Series A and in an acquisition, their lawyers read them, and they're looking for terms that make revenue less certain or the business harder to run or sell. The usual flags are consent and change-of-control clauses, exclusivity or other limits on who you can sell to, most-favored-customer pricing, uncapped liability or indemnities, commitments to build custom features or provide unusual support, broad customer ownership of deliverables, and termination for convenience on short notice in your largest contracts. They'll also look at concentration. If a few customers produce most of your revenue, their contracts get the closest read.

The test is whether your paper supports the story your metrics tell. Annual recurring revenue from a customer that can terminate on 30 days' notice is worth less than it looks, and a growth story built on one-off concessions suggests margins that won't scale. In a priced round or a sale, you'll also have to list your material contracts and any breaches or required consents in the disclosure schedule. Keep a short register of every significant contract, its renewal date and any non-standard terms, so these answers take hours, not weeks. See Startup Due Diligence and Startup Data Room.

How do I write a clear contract?

Plain English beats legalese. Define each key term once and use it consistently. Say who must do what, by when. Use "will" or "must" for obligations and "may" for options. Number sections so you can cross-reference them. Where you can, replace vague standards like "reasonable" with a number of days or a dollar amount.

For more, see What Are the 10 Contracts Every Startup Should Have on Hand?, NDA: What It Means for Startups and US Data Privacy Laws. For help with a specific agreement, see our contract review service or ongoing General Counsel support, or contact us.