Essential Clauses in a Contract: 5 Every Business Agreement Needs

Every business contract needs five clauses written for the deal in front of you: payment terms, confidentiality, limitation of liability, term and termination, and governing law with a dispute-resolution forum. Most disputes between businesses turn on one of them. Each also has limits set by the law that governs the contract, so a clause copied from another deal, or from another country’s template, may not do what it says.

Which clauses should every business contract have?

These five, adapted to the transaction and to the governing law:

Clause	What it settles	Typical gap
Payment terms	Amount, currency, due date, method, late-payment interest	No due date or no interest rate, so the statutory default applies
Confidentiality	What is confidential, permitted use, duration, return of information	Covers information shared after signing, not during negotiations
Limitation of liability	Cap, excluded losses, carve-outs	Cap the governing law will not enforce
Term and termination	Duration, renewal, exit rights, notice, what survives	No right to leave for convenience; unclear notice
Governing law and disputes	Which law applies; court or arbitration, and where	Forum whose decisions cannot be enforced where the other party’s assets are

Other clauses can matter as much in particular deals, such as force majeure, indemnities or IP ownership, but these five appear in almost every commercial agreement.

What should payment terms include?

State the amount, the currency, the due date, the payment method and the interest on late payment. If the contract is silent on interest, the governing law fills the gap. Under Taiwan’s Civil Code, a creditor owed money can claim default interest at the statutory rate unless a higher rate was agreed (Art. 233), and the statutory rate is 5% a year (Art. 203). Under the UNIDROIT Principles 2016, interest runs from the due date even if the non-payment is excused, at the average short-term bank lending rate for the currency of payment (Art. 7.4.9).

Fixed late-payment penalties are possible but not unlimited: a Taiwanese court may reduce an agreed penalty that is disproportionately high (Civil Code Art. 252), and under the UNIDROIT Principles a grossly excessive agreed sum may be reduced to a reasonable amount (Art. 7.4.13(2)).

What should a confidentiality clause cover?

Define what is confidential, what the other party may use it for, who may see it, how long the duty lasts and what happens to the information when the relationship ends. Information disclosed during negotiations is a common gap. Some legal systems protect it even without a contract: the UNIDROIT Principles impose a duty not to disclose or misuse information given as confidential during negotiations (Art. 2.1.16), and Taiwan’s Civil Code makes a party liable for intentionally or grossly negligently disclosing a secret it was asked to keep, even if no contract is concluded (Art. 245-1). These rules are narrower than a written clause, so sign a confidentiality agreement or an MOU with a binding confidentiality term before sharing anything sensitive. See what an MOU binds you to.

Is a limitation of liability clause enforceable?

Usually, within limits set by the governing law. Courts commonly refuse to enforce caps that exclude liability for serious fault or that are unfair in context:

Governing law	Limit on excluding or capping liability
Taiwan	Liability for intentional or grossly negligent acts cannot be released in advance (Civil Code Art. 222). In standard-form terms prepared by one party, a clause that releases or reduces that party’s responsibility and is obviously unfair is void (Art. 247-1).
England and Wales	Liability for death or personal injury caused by negligence cannot be excluded; other negligence liability only so far as the term is reasonable (Unfair Contract Terms Act 1977, s.2).
UNIDROIT Principles 2016	A clause limiting or excluding liability may not be invoked if that would be grossly unfair, having regard to the purpose of the contract (Art. 7.1.6).

A cap equal to the fees paid is common, but check what it excludes (lost profits, data loss), what it carves out (confidentiality, IP infringement, fraud) and whether the governing law will respect it.

What should a termination clause say?

It should say how long the contract lasts, how it renews, who may end it early and on what grounds, how much notice is needed and what survives termination. Typical grounds are material breach not cured within a set period, insolvency, a change of control and, where agreed, convenience on notice. List the obligations that survive, such as confidentiality, payment for work done, limitation of liability and dispute resolution, and say what happens to data, stock and work in progress.

How do you choose the governing law and where disputes are decided?

Name both the law and the forum, and choose the forum with enforcement in mind. Most systems respect the parties’ choice of law: Taiwan applies the law the parties intended (Act Governing the Choice of Law in Civil Matters Involving Foreign Elements, Art. 20), and in the EU a contract “shall be governed by the law chosen by the parties” (Rome I Regulation, Art. 3). Without a choice, the law most closely connected to the contract applies (Taiwan Art. 20(2)) or a fixed rule such as the seller’s or service provider’s habitual residence (Rome I Art. 4), which may not be the law you expected. Mandatory rules of some countries can still apply whatever you choose (Rome I Art. 9).

For the forum, a judgment from your home court is only useful if it can be enforced where the other party has assets:

Option	Cross-border enforcement
Arbitration	The New York Convention on foreign arbitral awards has 172 parties (UNCITRAL). Taiwan recognises foreign awards under its own Arbitration Act (Art. 47).
Exclusive choice-of-court clause	The Hague Choice of Court Agreements Convention 2005 has 39 Contracting Parties, including the EU, the UK and Singapore (HCCH status table, last updated 27 November 2025). Elsewhere it depends on national rules on recognising foreign judgments.

Name the seat and rules of any arbitration and the language of proceedings.

Frequently asked questions

Can I use the same contract template in every country?

Only as a starting point. The governing law can void or rewrite liability caps, penalties and standard terms, and some deals, such as leases of land, are often governed by the law where the property is. Have the template checked against the law it will run under.

Does a contract have to be in writing to be valid?

Not always. The UNIDROIT Principles require no particular form (Art. 1.2), and Taiwan’s Civil Code forms a contract once the parties agree (Art. 153), but some transactions need writing or notarisation. A written contract is also your main evidence of what was agreed. For signing electronically, see whether electronic signatures are legally binding.

What should I do if the other side insists on its own template?

Read the five clauses above first and propose changes to those that matter most. A contract review gives you a summary, the risks and a redline you can send back.