What should a small business contract include in the US?

GuideUSChecked 30 October 202620 primary sources8 min readUK version

The short answer

In the US, a small business contract should name the parties and define the scope, price and payment terms, with any late fee inside your state's usury limits. Add signed change orders, a liability cap and limited indemnity, warranties and disclaimers, cancellation rights, governing law and venue, and any notices your state or the FTC Cooling-Off Rule requires.

What must every contract cover?

Who, what, when and how much, in writing, and what happens if it goes wrong:

  • The parties: the legal entity that will pay, and your license number where your state requires it on contracts.
  • Scope and exclusions, deliverables and acceptance, and the schedule.
  • Price and payment terms: deposits, milestones, due dates and the late fee.
  • Change orders, limitation of liability, indemnity, insurance and warranty.
  • Termination, governing law and venue, and the state's required notices for consumer and home improvement work.

How should I set payment terms and late fees?

Write them in, because no general federal law adds interest to a private invoice. Set a late fee or monthly rate inside your state's usury and penalty limits. Without one, prejudgment interest runs at the state's rate, such as 10% a year on a California contract claim after breach (Civ. Code sec. 3289(b)) or 9% on a New York commercial claim (CPLR 5001(a) and 5004). As of Oct 2026.

  • Deposits have state limits on home improvement work: California caps the down payment at 10% of the price or $1,000, whichever is less, and later payments may not exceed the value of work done or materials delivered (Bus. and Prof. Code sec. 7159.5(a)(3) and (a)(5)). As of Oct 2026.
  • Attorney fees are recoverable only by contract or statute, and California makes a one-way fees clause mutual (Civ. Code sec. 1717).
  • Pay-if-paid clauses, which make a sub's payment depend on the owner paying, are unenforceable in California (Wm. R. Clarke Corp. v. Safeco Ins. Co., 15 Cal. 4th 882 (1997)) and New York (West-Fair Elec. Contractors v. Aetna Cas. and Sur. Co., 87 N.Y.2d 148 (1995)).

See how to price an estimate and how to collect an unpaid invoice.

How do change orders work?

Price and sign each change before the work, and say in the contract that nothing extra is owed without one. If a draft lets either side change scope or rates by notice, replace that with a signed change order.

How do I limit my liability and indemnity?

Cap what you can owe, for example at the fees paid in the prior 12 months, exclude lost profits and consequential damages, and indemnify only for your own fault. States limit what a cap can cover, As of Oct 2026:

  • California: a contract cannot exempt anyone from responsibility for fraud, willful injury or violation of law (Civ. Code sec. 1668).
  • New York: a cap does not protect gross negligence or intentional wrongdoing (Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (1983)).
  • Texas: shifting liability for a party's own negligence must meet the express negligence and conspicuousness requirements (Dresser Industries v. Page Petroleum, 853 S.W.2d 505 (Tex. 1993)).

On construction work, anti-indemnity statutes limit clauses that make you cover another party's negligence: California Civ. Code sec. 2782, Texas Ins. Code ch. 151, New York Gen. Oblig. Law sec. 5-322.1 and Fla. Stat. sec. 725.06. Strike or narrow broad-form indemnity, and check your insurance follows what you agree. See which subcontract clauses your state will enforce.

What warranties apply, and can I disclaim them?

For goods, UCC Article 2 implies warranties unless you disclaim them properly; services follow ordinary contract law. In states that adopted Article 2, As of Oct 2026:

  • A merchant seller gives an implied warranty of merchantability (UCC 2-314), and a warranty of fitness where it knows the buyer's purpose and the buyer relies on its skill (2-315). Descriptions, samples and specifications create express warranties (2-313).
  • A disclaimer of merchantability must mention it and, in writing, be conspicuous (2-316(2)); "as is" also works (2-316(3)(a)).
  • Repair or replace can be the exclusive remedy unless it fails of its essential purpose (2-719(2)), and excluding consequential damages is valid unless unconscionable; for personal injury from consumer goods it is prima facie unconscionable (2-719(3)).

Under federal rules, a written warranty on a consumer product over $15 must be available before purchase (16 CFR Part 702). As of Oct 2026.

Can a customer cancel?

Consumers often can, if you sold to them away from your place of business. The FTC Cooling-Off Rule covers a sale of $25 or more at the buyer's home, or $130 or more elsewhere away from your place of business, such as a hotel room or fairground, and lets the buyer cancel until midnight of the third business day. You must tell the buyer of the right, give a receipt or contract with the cancellation statement and two copies of the Notice of Cancellation, and refund within 10 business days of a cancellation (16 CFR 429.0 and 429.1). As of Oct 2026.

States add their own rules; follow whichever gives the buyer more. California gives 3 business days to cancel a home solicitation contract, or 5 for buyers 65 or older (Civ. Code sec. 1689.6); Texas (Bus. and Com. Code ch. 601) and Florida (Fla. Stat. secs. 501.021 to 501.055) give 3 business days on home solicitation sales; and New York home improvement contracts over $500 must be written with a 3-day cancellation notice (Gen. Bus. Law secs. 770 to 776). As of Oct 2026.

Which state's law applies, and where are disputes heard?

The one your contract names, within limits, so name the governing law and the county for disputes. On construction work, Texas and New York void a clause sending disputes on a project there to another state, California does for a subcontract with a California subcontractor, and Florida where it would make a Florida contractor, subcontractor or supplier litigate elsewhere (Bus. and Com. Code sec. 272.001; Gen. Bus. Law sec. 757; Code Civ. Proc. sec. 410.42; Fla. Stat. sec. 47.025). Small debts go to small claims court, with limits that vary by state.

Have a state-licensed attorney review your standard terms once, and any contract with uncapped indemnity, an IP assignment or a large sum before you sign.

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Questions owners ask

Can I charge a late fee in my contract?

Yes, if the contract sets it, inside your state's usury and penalty limits. Without one, prejudgment interest runs at the state's rate, such as 10% a year on a California contract claim after breach (Civ. Code sec. 3289(b)) or 9% on a New York commercial claim (CPLR 5001(a) and 5004). As of Oct 2026.

Do customers have 3 days to cancel a contract?

Only some sales. The FTC Cooling-Off Rule covers sales of $25 or more at the buyer's home, or $130 or more elsewhere away from the seller's place of business, until midnight of the third business day. State laws can add more, such as 5 business days for California buyers 65 or older. As of Oct 2026.

Can I limit my liability in a contract?

Usually, with a cap and an exclusion of consequential damages, but states set limits: California does not let a contract exempt fraud or willful injury (Civ. Code sec. 1668), and New York does not let a cap protect gross negligence. As of Oct 2026.

When should an attorney review my contract?

Once for your standard terms, and before you sign anything with uncapped indemnity, an IP assignment, a large sum or terms you do not understand. Use an attorney licensed in the state whose law governs it.

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