Common contractual risks for growing businesses

Why do contracts become riskier as a business grows?

Contracts become riskier because the same terms apply to larger amounts of money, more customers and more critical suppliers. A liability clause that exposed the business to a few thousand dollars in its first year can expose it to far more once the same template governs larger accounts.

Growth also changes what the business needs from its contracts. A company preparing to raise money or sell needs agreements that can be assigned, that do not lock it into exclusivity and that an investor or buyer can review quickly. Early agreements were rarely written with those goals in mind. Larger customers also bring their own paper, with terms drafted in their favor. The risk usually builds across many small contracts signed on the same weak terms.

What are the warning signs in an old contract template?

The clearest warning sign is a template that was borrowed or downloaded and lightly edited, then used unchanged for years. Templates written for another business, industry or state often contain terms that do not fit, or omit protections your business now needs. Review the template against the size of deals it now governs.

• No limitation of liability, or a cap that applies only to the other party
• Broad indemnities given by your business with no cap or carve-out logic
• Vague service levels or acceptance criteria that invite disputes
• No clear ownership of intellectual property in work you deliver or receive
• Governing law of a state where your business has no presence
• Payment terms with no right to suspend service for non-payment

Why does a business need to know every contract it has signed?

A business needs to know every contract it has signed because obligations in forgotten agreements still bind it. Without a single record, it becomes hard to track renewal and notice dates, exclusivity commitments, most-favored-customer pricing promises or minimum purchase obligations.

Change-of-control and anti-assignment clauses deserve particular attention. Many agreements require the other party's consent before the contract can be assigned or before a change in ownership, and some allow termination if control changes. In a financing or sale, the investor or buyer will usually ask for a list of these provisions. If the business cannot produce it, the review takes longer and consents may need to be requested under time pressure. Some counterparties use that moment to renegotiate price or other terms.

Who is allowed to sign contracts for the company?

Officers and others authorized by the board or the company's governing documents can sign, but a company may also be bound by someone who appears to have authority. Under general agency principles, a counterparty who reasonably believes an employee can sign on the company's behalf may be able to enforce the contract, even if internal rules were not followed.

As teams grow, more people negotiate with customers and suppliers. A short written signing policy, setting who can sign which types of agreement and above which value, keeps unusual terms from being accepted without review. Pair it with a standard set of approved positions, so sales and procurement teams know which changes they can accept and which need legal or finance sign-off.

How long can a contract claim be brought in Illinois?

In Illinois, the general limitation period for actions on written contracts is ten years, so obligations in old agreements can remain enforceable long after the work is done. For contracts for the sale of goods, the Uniform Commercial Code as adopted in Illinois generally sets a four-year period, which the parties may reduce by agreement to not less than one year.

These periods mean that keeping signed copies and related correspondence matters well beyond the end of a contract. Other states apply different periods, and the contract's governing law clause may affect which applies. If a dispute seems possible, take advice early, since the period may start running from the breach rather than from when the problem is noticed.

What should a contract register include?

A contract register should record, for each agreement, the information the business needs to act on without rereading the contract. It can start as a shared spreadsheet and move into a dedicated system later. Renewal dates deserve the most care: Illinois's Automatic Contract Renewal Act sets disclosure rules for certain auto-renewing contracts, but it does not track your own notice deadlines for you.

• Counterparty, contract type and the internal owner of the relationship
• Start date, term, renewal mechanism and the notice deadline to prevent renewal
• Liability cap, indemnities given and any uncapped exposure
• Exclusivity, non-compete, minimum commitment or most-favored pricing terms
• Change-of-control, assignment and termination rights
• Governing law, dispute forum and where the signed copy is stored

When should a growing business review its contracts?

A growing business should review its contracts before major events and on a regular cycle in between. The natural trigger points are a fundraising round, a planned sale, entry into a new market and any large new customer or supplier agreement.

Outside those events, an annual review of the register, focused on upcoming renewals and the highest-value agreements, catches most issues while they are still easy to address. When a template is updated, apply the change going forward and note which existing agreements still run on the older terms. Bring the most important of those agreements onto the new terms at their next renewal or amendment, rather than waiting for a dispute to show where the old terms fall short. Record who carried out each review and when, so the next review starts from a known position.

From our practice

In our work, we often meet businesses that have grown quickly on the back of one early contract template, adjusted deal by deal by whoever was closing it. The individual changes made sense at the time. Taken together, they leave the business with dozens of slightly different liability and renewal positions and no record of which customer has which. Building a register is usually the first step toward sorting that out.