Governing law: A complete guide for beginners

Introduction

Contracts can be as difficult as assembling IKEA furniture without the instructions, but understanding what a governing law clause is important. Knowing which legal system governs your contract can make a world of difference if things get messy.

A governing law clauses isn’t just legal mumbo jumbo; it’s your contract’s GPS, telling you which rules apply if a dispute arises.

What is governing law?

Governing law refers to the legal system that will be used to write, interpret and enforce your contract. It's like picking a rulebook for a game—it tells you which set of laws apply to your agreement.

Why is governing law important?

• Predictability: Knowing which laws apply gives you a clear understanding of what needs to happen by both parties under a contract, making it easier to plan for potential issues and handle them proactively.

• Consistency: It makes sure that all parties are on the same page about which legal standards to follow, which reduce the chances of misunderstandings.

• Risk management: Different countries or states have different laws and levels of legal protection. Choosing the right governing law can help reduce risks and protect your interests.

Choosing the right governing law

When picking a governing law, consider the following:

• Location of parties: Choose a legal system that is familiar and convenient for both parties. If both parties are in the same country or state, it's often easiest to choose that country's or state’s law.

• Business type: Some industries are a better fit for specific legal frameworks. For example, tech companies might choose laws that offer strong protection for intellectual property.

• Legal precedents: Consider choosing a location where the courts have a strong track record of decisions that fit your business operations. This can help you predict how they might handle similar cases.

Tips for drafting governing law clauses

• Be clear and specific: Avoid confusion by making it clear which law (e.g., the law of California) governs your contract. Specify the exact legal system to avoid any confusion.

• Consider neutral ground: If the parties are from different countries, pick a neutral location to ensure fairness. This helps avoid any bias and keeps things balanced. English law is often used as neutral ground, especially in international contracts.

• Consult legal experts: Get advice from lawyers who specialize in international contracts. Their expertise can help you make smart decisions and ensure your clauses are legally sound and enforceable.

How Cobrief can help

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Key Takeaways

• Governing law matters: It tells you the legal rules for understanding your contracts and agreements

• Be specific: Clear, precise governing law clauses prevent misunderstandings and legal headaches.

• Choose wisely: Consider convenience, familiarity, and enforceability when selecting governing law clauses.