How to Review a Contract Before Signing: A Guide for Non-Lawyers

Your software vendor sent you an 18-page contract. The sales team is pushing to close this week. You look at the document, recognize a few words —“indemnity,” “assignment,” “jurisdiction”— and wonder whether you should read it all or just sign it. That scene repeats every week in companies of all sizes. And the outcome, when no one reviews it, usually shows up months later: an automatic renewal nobody wanted, an intellectual property clause that transferred key assets, or an exit penalty that makes switching vendors unworkable. This guide is not meant to turn you into a lawyer. It is meant to give you a concrete method to read any commercial contract with a critical eye, detect what matters, and know exactly when you need professional advice.

⚠️ In Chile, you do not need to sign a document to become bound by it. The Civil Code classifies contracts as consensual, real, and solemn (art. 1443). The general rule is the consensual contract: it is perfected by the mere consent of the parties. This means that accepting a commercial proposal by email, confirming terms in a meeting, or giving the green light to a quote can create a legally enforceable obligation —even if nothing was ever signed on paper. If your company does not have a clear protocol on who can commit obligations and under what conditions, every "ok" in an email is a latent risk.

You do not need to be a lawyer. You need to know what to look for.

Most commercial contracts that land on a general manager’s or founder’s desk follow predictable structures. So do the risks. The problem is rarely that the contract is incomprehensible —it is that no one read it with the right questions in mind. A good internal first filter does not replace legal review. It complements it. It reduces back-and-forth with your lawyer, eliminates glaring errors before they reach negotiation, and allows you to make informed decisions about which clauses are worth fighting over. Think of it this way: your accountant does not replace your ability to read an income statement. Your lawyer should not be the only one able to spot that a contract binds you to something you never verbally agreed to.

The 10 points you should review in any contract

Whenever you have a contract in front of you —whether it is three pages or thirty— go through these ten points before signing.

1. Who are the parties?

Verify the legal name, tax ID number, and legal representative of each party. A mistake here can invalidate the contract or, worse, leave you chasing an entity that does not exist. If the other side operates through multiple entities, confirm that the correct one is signing.

2. What is the subject matter of the contract?

Is it clear what is being delivered and what is being paid? "Consulting services" is vague. "Preparation of a tax due diligence report on Company X, due no later than May 15" is concrete. Ambiguity in the subject matter is the number one source of contract disputes.

3. How long does it last?

Fixed term or indefinite? Does it renew automatically? If the renewal is automatic, how much advance notice do you need to give to avoid renewing? I have seen equipment lease contracts that renewed for equal periods with 90-day notice windows —the client found out when they were already locked in for another year.

4. How does it end?

What are the grounds for early termination? Are there penalties for leaving early? Is there a notice period? Check whether the grounds are symmetrical: a contract where the supplier can terminate with 30 days’ notice but you need 180 is a sign of imbalance.

5. Who is liable if something goes wrong?

Look for the limitation of liability clause. Is there a cap? Are indirect damages excluded? Are the indemnities mutual or do they only run against you? This is where the most money is at stake and, paradoxically, where non-lawyers pay the least attention.

6. Is there a confidentiality clause?

If you are sharing sensitive information —business plans, customer data, commercial strategies—you need contractual protection. Check what is defined as "confidential information," how long the obligation lasts, and what exceptions it has. Confidentiality that lasts only while the contract is in force protects nothing.

7. What happens to intellectual property?

If you are hiring for software development, design, content, or any creative work: who owns the result? You or the vendor? Is there a license to use or a full assignment? Law 17,336 on Intellectual Property includes a presumption of ownership in favor of the employer for works created under an employment relationship [VERIFY: art. 7, para. 3 / art. 8, Law 17,336, according to the current version]. But that rule does not apply to civil services contracts: if you did not expressly agree to the assignment or licensing of the author’s economic rights, the creator retains ownership. A contract without an IP clause is a ticking time bomb.

8. Where are disputes resolved?

Jurisdiction and dispute resolution mechanism. Ordinary courts? Arbitration? In which city? To put the cost in perspective: according to the fee schedule of the Arbitration and Mediation Center of the Santiago Chamber of Commerce (CAM Santiago), the initial fee for an arbitration involving disputes under 600 UF starts at 12.5 UF + VAT, and arbitral fees scale from 30 UF depending on the amount in dispute. In medium-sized disputes, the total cost easily exceeds 100 UF between administrative fees and the arbitrator’s fees. If your contract is worth 50 UF, that clause leaves you without real access to justice.

9. Are there obligations that survive termination?

Confidentiality, non-compete, outstanding indemnities. Some obligations continue after the contract ends. Check which ones and for how long. A five-year post-termination non-compete clause in a six-month services contract is disproportionate.

10. Who has the authority to sign?

Confirm that each party’s legal representative has valid authority. In Chilean companies constituted under the traditional regime, this is verified with the certificate of validity of powers from the Commercial Registry of the relevant Real Estate Registrar’s Office. For companies under the Simplified Regime (Law 20,659), verification is done in the Companies and Societies Registry of the Ministry of Economy (tu.empresa.cl). If someone without sufficient authority signs, the contract may not be enforceable against the company.

7 red flags that require legal review before signing

If you find any of these in a contract, stop. Do not sign without having a lawyer review them:

1. Unlimited indemnities. A contract that requires you to indemnify "all damages" without a monetary cap exposes you to potentially unlimited risk. Even large companies negotiate liability caps.
2. Free assignment to third parties. When the other side can assign the contract to any third party without your consent, tomorrow you could be tied to someone you did not choose.
3. Foreign jurisdiction without commercial justification. A local supplier requiring disputes to be resolved in Delaware or in London courts is probably trying to make it impractical for you to claim.
4. Excessive non-compete clauses. Broad geographic restrictions, long durations, or vague definitions of "competition" can paralyze your business long after the commercial relationship ends.
5. Automatic renewal without a clear notice mechanism. Being unable to easily exit a contract is not a contract —it is a trap.
6. Unlimited transfer of intellectual property. Clauses that transfer "all work, invention, or development" without defining scope can capture assets that have nothing to do with the contracted service.
7. Disproportionate penalties. A penalty of 50% of the contract value for a three-day delay is not a reasonable liquidated damages clause —it is a pressure tactic. In Chile, art. 1544 of the Civil Code allows the court to reduce an "enormous" penalty clause when it is disproportionate to the main obligation. But getting to that judicial stage is expensive and slow: it is better to negotiate the penalty before signing.

Express checklist: contract review in 10 points

Cut out this list and keep it handy every time you receive a contract to sign.

• Verify the legal name, tax ID number, and legal representative of each party
• Confirm that the contract’s subject matter precisely describes what was agreed
• Review duration, renewal, and the notice window for non-renewal
• Identify grounds for early termination and exit costs
• Read the full limitation of liability clause
• Confirm that confidentiality protects your sensitive information
• Verify who owns the generated intellectual property
• Review jurisdiction and dispute resolution mechanism
• Identify obligations that survive termination of the contract
• Confirm the current authority of the counterparty’s signer

When to escalate: matters that always require a lawyer

The internal first filter has clear limits. There are situations where professional review is not optional: By amount: Any contract representing a significant value for your business deserves legal review. The cost of advice will be a tiny fraction of what is at stake. By complexity: Contracts with multiple parties, cross-border operations, structured financing, or earn-out clauses require specialized experience. This is not territory for improvisation. By subject matter: Shareholder agreements, franchise contracts, technology licensing, joint venture agreements, and any instrument affecting the corporate structure of your company. Also, employment contracts for key executives with non-compete clauses or stock options. By counterparty: When you negotiate with a significantly larger company, its standard contract is designed to protect it. The "standard" clauses of a multinational are not neutral —they are the result of years of optimization in its favor.

A good first filter changes the equation

Legal review should not be a last-minute errand where the lawyer receives the contract on a Friday at 6 PM with instructions to "review it by Monday." When the internal team has already done an initial filter —identified the critical points, marked the clauses that raise questions, confirmed that the basic details add up— professional review focuses on where it really adds value. The result: contracts closed faster, with less risk, and with predictable legal costs. That is exactly what an Outside General Counsel model does: a go-to lawyer available to review what your team has already filtered, without the fixed cost of an in-house legal department. You do the first filter. We provide the experience so you can sign with peace of mind. Let’s talk At CUBILLOS LAMA, we operate under the Outside General Counsel model as our core offering. We support startups, mid-sized Chilean companies, multinational subsidiaries entering Chile, and Chilean companies going international. If you want to assess whether the model makes sense for your company, <u>schedule your consultation with Cubillos Lama</u> Your legal department, without the cost of having one of your own. This content is informational and does not constitute legal advice for a specific case.