Any time you sign a contract, you agree to do something for someone else. Your business will be entering into many types of contracts, be it a lease agreement for buildings or equipment, vehicle contracts, employment contracts, or even manufacturing contracts.
Whenever you sign a contract, you should understand what you are signing, and what type of liability you are taking on.
Commercial contracts usually include an indemnity agreement. This means that you will make the party whole again should there be a financial loss due to your negligence.
You rent a tractor from Martins Hardware Co. The rental agreement contains a standard indemnification clause. While using the tractor in the course of your business activities, you hit a parked car with it. The owner of the damaged car sues Martins Hardware Co. as owner of the tractor. Martins Hardware Co. sues you for the amount claimed.
You signed a contract with Smith Designs Co. in which you agree to construct a new building for them. The building requires the set up of electrical wiring, that you subcontract out to Miller Electrical Co. Miller is negligent in not making the rooms free from loose cables, and a visitor trips on one, leading to a severe injury. The injured visitor sues MillerElectrical Co. and Smith Designs Co. - both of which, in turn, sue you.