As your business grows, so does the stack of contracts on your desk. Vendor agreements, client contracts, leases, partnership arrangements, software subscriptions, employment agreements—each one contains clauses that determine who bears the risk when something goes wrong.
Most business owners read contracts for the big-picture terms: price, scope, timeline. The clauses that actually determine your financial exposure are often buried in the back half of the document, written in language designed for lawyers.
This guide breaks down five contract clauses that every growing business owner should understand before signing. These aren’t obscure legal provisions. They’re the terms that show up in almost every business contract, and they have real consequences when disputes arise.
1. Right of First Refusal
What It Is
A right of first refusal (ROFR) gives one party the opportunity to match any offer before the other party can accept it from a third party. If your business partner wants to sell their share, your ROFR gives you the chance to buy it at the same price and terms before they sell to an outsider.
Where You’ll See It
- Operating agreements and shareholder agreements — Co-owners grant each other the right to buy out a departing member’s interest before an outside buyer can
- Commercial leases — A landlord may grant a tenant the right of first refusal on adjacent space
- Vendor and supplier contracts — A supplier may offer a preferred customer the right to match any competing bid
- Franchise agreements — A franchisee may have a ROFR on nearby territories
Why It Matters to Your Business
A ROFR protects your company from unwanted third parties entering your business relationships. If your business partner decides to sell, you want the opportunity to control who you work with—rather than waking up one morning to discover your partner sold to someone you’ve never met.
Conversely, if you’re the one subject to a ROFR, it can limit your ability to sell or transfer your interest. A ROFR can delay deals, discourage potential buyers (who may not want to invest time negotiating if the other party can just match their offer), and create uncertainty.
What to Negotiate
Be specific about the trigger. The ROFR should clearly define what triggers the right: a bona fide third-party offer, a decision to sell, or specific circumstances like death or disability. Vague triggers create disputes.
Define the timeline. How long does the ROFR holder have to exercise the right? Thirty to sixty days is common. An indefinite right creates unreasonable delay. In Minnesota, courts will enforce ROFRs with clearly defined terms but may find provisions with vague or missing timelines to be unenforceable as unreasonable restraints on transfer.
Address the matching terms. Does the holder have to match the full offer, including non-monetary terms? Can they match only the price? This distinction matters when a third-party offer includes terms like seller financing or earnouts that the ROFR holder may not be able to replicate.
Include a waiver mechanism. If the holder declines to exercise the ROFR, the selling party should be free to proceed with the third-party transaction on substantially similar terms. If the terms materially change, the ROFR should be retriggered.
2. Early Termination
What It Is
An early termination clause defines when and how either party can end the contract before the scheduled term expires. It typically specifies the conditions for termination, required notice periods, and any financial consequences.
Where You’ll See It
- Service agreements — With vendors, consultants, and contractors
- Commercial leases — Break clauses or early exit provisions
- Software and SaaS subscriptions — Particularly multi-year agreements
- Employment agreements — Especially for executives or key employees
Why It Matters to Your Business
Business needs change. A three-year vendor contract that made sense when you signed it may become unworkable after your business pivots, your needs evolve, or the vendor’s quality declines. Without an early termination clause, you’re locked in—or facing a breach of contract claim if you walk away.
On the other side, if you’re providing services, an early termination clause without adequate protection can leave you with lost revenue, sunk costs, and idle capacity.
What to Negotiate
Termination for cause vs. for convenience. These are fundamentally different:
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Termination for cause allows either party to exit when the other party breaches the agreement. This is standard and should be in every contract. Define what constitutes a breach serious enough to trigger termination, and include a cure period (typically 30 days) that gives the breaching party a chance to fix the problem.
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Termination for convenience allows a party to exit for any reason, typically with advance notice. This is more favorable to the party exiting but creates uncertainty for the other side. If you agree to termination for convenience, negotiate adequate notice periods and transition provisions.
Early termination fees. Many contracts impose a fee for early termination—often calculated as the remaining balance of the contract, a percentage of the remaining term, or a fixed amount.
Under Minnesota law, an early termination fee must be a reasonable estimate of actual damages, not a penalty. Courts applying Minn. Stat. Section 336.2A-504 (for leases) and common law principles will examine whether the fee bears a reasonable relationship to the anticipated loss from early termination. A fee that is disproportionate to actual damages may be found unconscionable and unenforceable.
Notice requirements. How much notice is required? Thirty to ninety days is typical for commercial contracts. Ensure the notice period is long enough for an orderly transition but not so long that it defeats the purpose of early termination.
Transition obligations. What happens after termination? The clause should address:
- Return of property, data, and confidential information
- Continuing obligations (such as warranties on work already performed)
- Final payment for services already rendered
- Cooperation during the transition period
3. Indemnification
What It Is
An indemnification clause allocates risk by requiring one party to compensate the other for specific losses, damages, or legal costs. It answers the question: “If something goes wrong because of your actions, who pays?”
Where You’ll See It
Virtually every commercial contract includes an indemnification clause. It’s one of the most negotiated provisions in business agreements because the financial stakes can be substantial.
Why It Matters to Your Business
An unfavorable indemnification clause can expose your company to unlimited liability for losses you didn’t cause. A well-negotiated clause ensures that each party bears responsibility for its own actions and mistakes.
What to Negotiate
Push for mutual indemnification. In most arm’s-length business relationships, both parties should indemnify each other for losses caused by their own negligence, breach, or misconduct. One-sided indemnification—where only you are indemnifying the other party—should be questioned unless the risk profile clearly justifies it.
Watch the scope. Indemnification for losses “arising out of or related to” the contract is significantly broader than indemnification for losses “caused by” a party’s breach or negligence. The broader language can make you responsible for losses you had nothing to do with. Push for fault-based triggers.
Negotiate a cap. An uncapped indemnification obligation is an unlimited liability exposure. Common approaches include capping indemnification at the total contract value, at insurance coverage limits, or at a multiple of fees paid.
Understand the duty to defend. The obligation to pay for the other party’s legal defense can be more expensive than the underlying damages. If you agree to defend the other party, ensure you control the defense—including selection of counsel and settlement decisions.
Minnesota-specific considerations: Minnesota courts apply strict construction to indemnification provisions that attempt to shift liability for one party’s own negligence. The language must clearly and unequivocally express the intent to shift that risk. In construction contracts, Minn. Stat. Section 337.02 makes indemnification provisions unenforceable except to the extent the loss is attributable to the indemnifying party’s own fault.
For a more detailed treatment of indemnification, see our comprehensive guide: Indemnification Clauses: What Every Business Owner Should Negotiate.
4. Limitation of Liability
What It Is
A limitation of liability clause caps the total amount of damages one party can recover from the other under the contract. While indemnification determines who pays for specific types of losses, limitation of liability sets the ceiling on total exposure.
Where You’ll See It
- Software and SaaS agreements — Almost always include liability caps
- Professional services contracts — Consultants, agencies, and advisors
- Vendor and supplier agreements — Particularly for goods and services
- Construction and subcontractor agreements
Why It Matters to Your Business
Without a limitation of liability clause, a single contract dispute could expose your company to damages that dwarf the contract value. A $25,000 software subscription shouldn’t put your company at risk for $2 million in consequential damages if the software fails.
At the same time, if you’re the one buying services, an overly restrictive limitation of liability clause may leave you with no meaningful remedy if the vendor fails to perform.
What to Negotiate
Cap at a reasonable multiple of the contract value. Common caps range from 1x to 3x the total fees paid under the contract. A cap that’s too low relative to potential damages may effectively eliminate your remedies. A cap that’s too high may not provide meaningful protection for the party providing services.
Exclude consequential damages. Most limitation of liability clauses exclude indirect, consequential, incidental, and special damages—such as lost profits, lost revenue, and lost business opportunities. This exclusion is standard in commercial contracts and is generally enforced by Minnesota courts between sophisticated parties.
Carve out certain claims. Some types of liability should not be subject to the cap:
- Intellectual property infringement — A single IP claim can exceed the contract value many times over
- Confidentiality and data breaches — The costs of a data breach (notification, credit monitoring, regulatory fines, litigation) are unpredictable and can be substantial
- Willful misconduct or fraud — Courts may not enforce caps on intentional wrongdoing
- Indemnification obligations for third-party claims — Consider whether the liability cap applies to indemnification obligations or whether those are treated separately
Minnesota enforceability: Courts in Minnesota enforce limitation of liability clauses in commercial agreements between sophisticated parties unless the clause is unconscionable, against public policy, or the result of a special social relationship. Under Minn. Stat. Section 336.2-302, a court can refuse to enforce a contract provision it finds unconscionable—but when two experienced business parties have negotiated the agreement, the clause is generally presumed conscionable.
Make it conspicuous. Minnesota courts look for limitation of liability language that stands out in the document. Bold text, capital letters, or a separate section heading all help demonstrate that the provision was not hidden from the other party.
5. Force Majeure
What It Is
A force majeure clause excuses one or both parties from performing their contractual obligations when extraordinary events beyond their control make performance impossible or impractical. The French term translates roughly to “superior force.”
Where You’ll See It
- Supply and manufacturing agreements — Raw material shortages, shipping disruptions
- Construction contracts — Weather delays, permit issues, material unavailability
- Service and consulting agreements — Government shutdowns, regulatory changes
- Event and venue contracts — Natural disasters, public health emergencies
- Commercial leases — Property damage, government orders
Why It Matters to Your Business
Before 2020, force majeure clauses were boilerplate language that most business owners never thought about. The pandemic changed that permanently. Businesses across every industry faced the question: does our contract excuse performance when a global health crisis shuts everything down?
The answer often depended on the exact language of the force majeure clause—and many businesses discovered that their clauses weren’t specific enough to cover what actually happened.
What to Negotiate
List specific triggering events. Minnesota courts generally enforce force majeure provisions as written, and the clause governs the available remedies. A vague clause that references only “acts of God” may not cover a pandemic, a cyberattack, or a government regulatory action.
Include events relevant to your business and industry:
- Natural disasters (floods, tornadoes, earthquakes)
- Pandemics, epidemics, and public health emergencies
- Government actions, orders, or regulations
- War, terrorism, and civil unrest
- Supply chain disruptions and material shortages
- Cyberattacks and technology failures
- Labor strikes and work stoppages
- Utility failures (power, internet, telecommunications)
Include a catch-all with a standard. After the specific list, include catch-all language like “and other events beyond the reasonable control of the affected party that could not have been reasonably foreseen or prevented.” This provides coverage for events you haven’t anticipated while establishing a standard for what qualifies.
Define the obligations during a force majeure event. The clause should address:
- Notice requirements — How quickly must the affected party notify the other? 48 to 72 hours is reasonable.
- Mitigation — The affected party should be required to use reasonable efforts to mitigate the impact and resume performance as soon as practicable.
- Duration limits — If the force majeure event continues beyond a defined period (90 to 180 days is common), the non-affected party should have the right to terminate the contract.
- Payment obligations — Does the force majeure suspension also suspend payment obligations, or does the non-performing party continue to owe payments?
Understand what happens without a force majeure clause. In Minnesota, if your contract doesn’t include a force majeure clause, you may still have defenses under common law doctrines—but they’re harder to establish:
- Impossibility — Performance must be objectively impossible, not merely difficult or expensive
- Impracticability — Performance must be impractical due to an event the parties did not anticipate, and the impracticability must be substantial
- Frustration of purpose — The purpose of the contract must be substantially frustrated by an unforeseen event
Important: Minnesota courts have noted that an express force majeure clause in a contract may preclude reliance on common law impossibility or impracticability doctrines, on the theory that the parties already addressed the topic contractually. This makes the specific language of your force majeure clause even more critical—it may be your only avenue for relief.
Putting It All Together: How These Clauses Work as a System
These five clauses don’t operate in isolation. They form an interconnected risk allocation framework within your contract:
Right of First Refusal controls who you do business with. It prevents unwanted third parties from entering your business relationships.
Early Termination determines how and when you can exit a relationship that isn’t working. The notice periods, cure periods, and termination fees define the cost of walking away.
Indemnification allocates specific risks between the parties. It determines who pays when a third party files a claim, when a product fails, or when a breach of the contract causes harm.
Limitation of Liability sets the ceiling on total exposure. Even if indemnification applies, the liability cap may limit the ultimate recovery.
Force Majeure addresses what happens when performance becomes impossible due to events beyond anyone’s control.
When reviewing a contract, look at these clauses together:
- Does the indemnification obligation exceed the limitation of liability cap? If so, which one controls?
- Does termination trigger indemnification obligations, or does it extinguish them?
- Does a force majeure event relieve indemnification obligations, or do they survive?
- If the ROFR is triggered, do the other clauses transfer to the new party?
Contracts that handle these interactions clearly reduce the likelihood of disputes. Contracts that leave gaps create expensive ambiguity.
A Practical Approach to Contract Review
You don’t need to become a contract attorney. But you do need a systematic approach to reviewing the agreements your business enters.
Before you sign, ask these five questions:
- What am I responsible for if something goes wrong? (Indemnification)
- What’s the most I could owe—or lose—under this contract? (Limitation of Liability)
- How do I get out if this relationship stops working? (Early Termination)
- What happens if circumstances beyond my control prevent performance? (Force Majeure)
- Can someone I don’t know end up on the other side of this contract? (Right of First Refusal)
If you can answer those five questions clearly after reading the contract, you have a reasonable understanding of your risk. If you can’t, the contract needs closer review.
Key Takeaways
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These five clauses determine your financial exposure in almost every business contract. Price, scope, and timeline matter—but risk allocation determines what happens when things don’t go as planned.
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Match the risk to the relationship. A $5,000 software subscription and a $500,000 vendor agreement demand different levels of protection. Don’t apply the same template to every contract.
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Minnesota law shapes enforceability. Indemnification clauses face strict construction. Limitation of liability clauses must be conspicuous and not unconscionable. Force majeure clauses will be enforced as written. Early termination fees must be reasonable estimates of actual damages.
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Read these clauses together, not in isolation. The interaction between indemnification, limitation of liability, and force majeure determines your actual exposure—not any single clause on its own.
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When the stakes are high, bring in counsel. The cost of reviewing a contract is a fraction of the cost of a dispute over unfavorable terms.
For guidance on contract review and negotiation specific to your business, contact Aaron Hall.
Aaron Hall is a Minneapolis business attorney who represents business owners and their companies in contracts, employment law, intellectual property, litigation, and business matters.