What It Does
A governing law clause, also called a choice of law provision, states which jurisdiction's substantive law applies to the interpretation and enforcement of a contract. It controls questions like what counts as a breach, which defenses are available, and how damages are measured. A separate forum selection clause decides where a dispute is heard. Courts generally enforce a chosen law where the jurisdiction has a reasonable relationship to the parties or the deal, subject to a public policy limit and to statutes that can override or validate the choice.
Selects the substantive law that interprets every other provision in the contract
Settles what counts as a breach, which defenses apply, and how damages are calculated
Removes the cost and uncertainty of a conflict-of-laws fight before a court reaches the merits
Pairs with a forum selection clause, which separately decides where a dispute is heard
Can be locked to a chosen state even without a connection, under statutes in New York and Delaware
New York and Delaware remain the default choices for large commercial agreements, backed by statutes that honor the selection even when neither party is located there.
When You'll See It
A governing law clause appears in the general provisions of nearly every written contract: SaaS and vendor MSAs, loan agreements, M&A documents, leases, employment agreements, and investment management agreements. It is usually grouped with the forum selection and dispute resolution terms, and the three are often confused. The drafting varies most in cross-border and multi-state deals, where each side pushes for its home law. See also: severability, survival, and assignment.
Examples
Nextracker LLC
Flextronics International USA, Inc., Amendment to Transition Services Agreement
Delaware
Mutual
2023
"This Agreement and all rights and remedies in connection herewith, shall be governed by and construed in accordance with the laws of the State of Delaware, excluding any conflict-of-laws rule or principle (whether under the laws of Delaware or any other jurisdiction) that might refer the governance or the construction of this Agreement to the law of another jurisdiction."
Origin, Inc.
Executive (Michael Preston), Amendment No. 3 to Employment Agreement
New Jersey
Mutual
2023
"This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed in that state, without regard or reference to its principles of conflicts of laws ... Each of the parties unconditionally and irrevocably consent to the exclusive jurisdiction of the courts of the State of New Jersey."
Tech Infrastructure JV I LLC
LMFA Financing, LLC, Omnibus Amendment
Delaware
Mutual
2024
"THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS IN THE STATE OF DELAWARE. BORROWER AND LENDER AGREE THAT THE SOLE AND EXCLUSIVE PLACE OF JURISDICTION FOR RESOLUTION OF ANY DISPUTE ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS SHALL BE DELAWARE."
Unite Acquisition 2 Corp.
Lucius Partners Opportunity Fund, LP, Promissory Note
New York
Mutual
2024
"THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ... BORROWER HEREBY CONSENTS ... TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE STATE OF NEW YORK."
Splash Beverage Group, Inc.
Lender, Promissory Note
Arizona
Mutual
2023
"This Note shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to its principles regarding conflicts of law."
AMJ Global Technology
Dark Bull Capital, Inc., Revenue Share Agreement
Nevada
Mutual
2024
"This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada. ... The parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim or controversy between them."
Negotiate
Choose a state with deep, predictable commercial case law (New York and Delaware lead) so your indemnity and liability terms are read against a developed body of law.
Add “without regard to its conflict-of-laws principles” so the chosen state’s own conflict rules cannot redirect to another jurisdiction.
For a contract of $250,000 or more with no natural home, New York law can be chosen under General Obligations Law Section 5-1401 (as amended effective August 31, 2018) even without a New York connection; Delaware allows the same under 6 Del. C. Section 2708 (as amended effective June 28, 2005).
Confirm the governing law clause and the forum selection clause point where you intend, since they operate independently.
A chosen law gives way to another state’s fundamental public policy and to its mandatory statutes, such as California’s limits on employee non-competes.
Certain claims (employment, consumer protection, some IP ownership rules) follow mandatory local law regardless of the clause.
Choosing a state with no relationship to the deal can fail outside the New York and Delaware statutory safe harbors, where the reasonable-relationship test still applies.
Red Flags
No governing law clause, which leaves a court to run an expensive conflict-of-laws analysis before reaching the merits.
Governing law and forum selection that point to different places by accident, producing a court applying unfamiliar law.
A clause that names the governing law but never names a forum, so the contract is silent on where a dispute is filed.
A chosen state with no connection to the parties or the deal and outside a statutory safe harbor, which a court may decline to honor.
A missing “without regard to conflict-of-laws principles” carve-out, which can loop the analysis back to another jurisdiction.
FAQs
This content is for informational purposes only and does not constitute legal advice.
