It’s crucial to include the right terms in contracts to protect your business. Two important clauses to have are indemnity and liability clauses. However, not everyone understands the role each clause plays in contracts and business transactions.
Yes, you need both clauses
In most commercial contracts, you need both indemnity and liability clauses. These two serve different purposes. They help in different ways, even if they both deal with damages and responsibility.
What is an indemnity clause?
An indemnity or indemnification clause decides who’s responsible if something goes wrong. It explains how the responsible party will compensate or pay the other party. Its benefits include:
- Risk protection: You can outline what risks or events you want the other party to take responsibility for.
- Third-party claims: An indemnification clause doesn’t just concern your client or business partner. It can also help your business should a third party bring a claim against either party in the contract.
- Faster compensation: Indemnity clauses can allow you to get compensation quickly, even without a legal battle for breach of contract.
Think of indemnity clauses as your protection against legal responsibility if you encounter problems.
What is a limited liability clause?
A limited liability clause specifies how much your business might need to pay if something goes wrong. It puts a cap or limit on how the amount of damages the other party can claim from your business. The benefits include:
- Protection against huge claims: The clause ensures your business isn’t responsible for unlimited damages.
- Better settlements: It helps you set more favorable settlement terms.
Think of liability clauses as your protection against large financial payments for damages you are responsible for.
Draft a strong contract with legal help
An indemnity clause usually concerns your business partner or client. Meanwhile, a liability clause deals with your business’ financial duties. Together, the two clauses help reduce risks and secure your business interests in case of disputes.
Working with a skilled contract attorney can help you write a contract that meets your specific needs. They can tailor your indemnification and liability clauses to protect your business from too much legal and financial responsibility.