Contracts & Legal Glossary
The legal terms that appear in commercial agreements. Understanding them is the difference between negotiating from knowledge and from instinct.
NDA (Non-Disclosure Agreement)
An NDA (also called a confidentiality agreement or CDA) restricts the receiving party from disclosing or using confidential information beyond the agreed purpose. Mutual NDAs apply both directions; one-way NDAs apply only to one party. Standard NDAs run 2-5 years; some specify perpetual obligations for trade secrets.
Most NDAs are heavily templated and rarely heavily negotiated. The provisions that matter: scope of confidential information (broad definitions favor the discloser; narrow definitions favor the recipient), permitted uses, term length, return/destruction obligations on termination, and whether residual knowledge in employees' memories is excluded. NDAs alone don't prevent disclosure; they create the basis for damages if disclosure occurs.
MSA (Master Services Agreement)
An MSA establishes the legal terms that apply to all engagements between two parties — payment terms, liability caps, indemnification, IP ownership, confidentiality, dispute resolution. Specific projects or service deliverables are added as Statements of Work (SOWs) under the MSA, each describing scope, deliverables, timeline, and price. The MSA-plus-SOW structure means the parties negotiate the legal terms once and execute multiple SOWs without re-negotiating the framework.
MSAs are the standard for ongoing professional services and software relationships. The MSA negotiation can be lengthy and expensive (especially for enterprise customers); subsequent SOWs are typically much faster. For one-off engagements, a single combined services agreement is often more efficient than the MSA-plus-SOW structure.
SOW (Statement of Work)
A Statement of Work is the project-level document that sits under an MSA. It defines scope (what's being delivered), deliverables (specific outputs), timeline (milestones and final delivery), price (fixed-fee, time-and-materials, milestone-based), acceptance criteria (what "done" means), and assumptions (what the client must provide). SOWs are typically a few pages; the MSA above them is the legal armature.
The most common SOW failure mode: scope ambiguity that surfaces in delivery as scope creep. Specific deliverables, explicit assumptions, and clear acceptance criteria — including what's not in scope — prevent most disputes. Change orders amend the SOW for in-flight scope changes; without a change-order process, scope grows informally and producing payment disputes at delivery.
Indemnification
An indemnity is a promise to cover the other party's losses from specified third-party claims. Common indemnification triggers: IP infringement claims (the seller indemnifies the buyer if the product infringes someone's IP), data breach claims (the processor indemnifies the controller for processor-caused breaches), and breach of representations. Indemnification is broader than ordinary contract damages because it includes defense costs and is typically uncapped or subject to higher caps than other liability.
Indemnification provisions are heavily negotiated in B2B contracts. Key provisions: scope of triggering claims, control of defense (who picks the lawyer), settlement consent rights, exclusions and carve-outs, and sub-limits. In SaaS contracts, IP infringement indemnification by the vendor is essentially expected; data security indemnification is increasingly so.
Limitation of liability
Limitation of liability provisions cap the maximum damages one party can recover from the other in case of breach or other claims. Common formulations: cap at fees paid in the prior 12 months, fixed-dollar cap, or insurance-policy limits. Limitation of liability provisions also typically exclude consequential damages (lost profits, business interruption) — meaning a party can recover direct damages but not the larger downstream effects.
Limitation of liability is the most-negotiated section of most B2B contracts because it determines real risk exposure. Carve-outs for specific issues (IP indemnification, confidentiality breach, gross negligence, willful misconduct, data breach) allow uncapped recovery for the most consequential claims while capping ordinary commercial disputes. The right cap level depends on contract size, industry norms, and the nature of the risk.
Force majeure
Force majeure clauses excuse a party from performance when extraordinary events outside their control make performance impossible or commercially impracticable. Standard triggers: natural disasters, war, terrorism, government action, labor strikes, pandemics. The COVID-19 pandemic triggered widespread force majeure invocations, with mixed legal outcomes depending on contract language.
Force majeure clauses often have narrow scope and specific notification requirements. Many older clauses don't enumerate pandemics; courts interpret "acts of God" and "government action" inconsistently. Modern clauses tend to include explicit pandemic coverage. The clause typically suspends performance rather than terminating the contract; long-running force majeure can become a termination right.
Arbitration
Arbitration clauses require disputes to be resolved by a private arbitrator (or panel) rather than in court. Common arbitration administrators: AAA (American Arbitration Association), JAMS, ICC for international disputes. Arbitration is typically faster, more confidential, and harder to appeal than court litigation; it's also typically more expensive than expected and more rigid than negotiated outcomes.
Arbitration is the default for most B2B contracts and is increasingly common in consumer agreements. Class-action waivers (preventing class arbitration) are upheld in US contracts under the Federal Arbitration Act. The choice of arbitration venue, governing rules, language, and arbitrator-selection process all matter and should be negotiated, not accepted from a template.
Governing law and venue
Governing law specifies which jurisdiction's substantive law applies to the contract — California, Delaware, New York, English law, etc. Venue (or forum) specifies where a dispute is heard. Common combinations: Delaware law with Delaware courts (for inter-corporate disputes), New York law with New York courts (for finance contracts), California law with California courts (for tech contracts originating there).
Governing law and venue choices have real consequences. California's strong employee-protection laws and prohibition on most non-competes affect employment-adjacent contracts. Delaware's deep corporate case law makes it the standard for inter-company disputes. Choosing a venue convenient to one party (your home jurisdiction) creates structural advantage in any future litigation; the other party will resist this and propose mutually inconvenient "neutral" venues.
Termination for convenience
Termination for convenience allows one or both parties to end the contract for any reason or no reason, typically with defined notice (30, 60, or 90 days). It's distinct from termination for cause (breach) and termination for change of control. Customers favor strong termination-for-convenience rights to avoid lock-in; vendors resist them because they undermine the predictability of the revenue commitment.
SaaS contracts typically include some form of mid-term termination — sometimes only with payment of remaining contract value (which makes it economically equivalent to no termination), sometimes with a defined refund or credit mechanism. Government contracts almost always include termination for convenience, often without compensation; commercial contracts vary widely. Read the termination clause before assuming a contract is firm.
Assignment and change of control
Assignment provisions govern whether a party can transfer the contract to a third party. Some contracts prohibit assignment without consent; others permit it freely; many include change-of-control provisions specifically — meaning if one party is acquired, the other party can terminate or has consent rights.
Change-of-control provisions are particularly important in M&A. A target's customer or vendor contracts that include change-of-control termination rights can be lost in an acquisition (or expensively re-negotiated). Diligence should identify all change-of-control-sensitive contracts and assess re-negotiation risk. Buyers sometimes condition closing on key customer waivers of change-of-control rights.
Non-compete and non-solicit
Non-compete clauses restrict a party — usually an employee, founder, or seller in an M&A deal — from competing with the other party for a defined period in a defined geography. Non-solicit clauses restrict the same party from soliciting customers or employees of the other party. Both are heavily regulated and vary significantly by jurisdiction.
California voids most employee non-competes by statute; many other US states limit them by judicial review (must be reasonable in scope, duration, and geography). The FTC issued a federal ban in 2024 that has been litigated and is in flux. Non-competes attached to M&A transactions are generally upheld more readily because they protect the bargained-for value of the acquired business. Non-solicits are typically more enforceable than non-competes everywhere.