What are liquidated damages?

On Behalf of | Jul 28, 2021 | Business Law |

Owning and operating a business requires more than delivering a high-quality product or service to a demanding audience. In order to remain successful and profitable, it is important to understand various laws as well as how businesses legally operate. If you own a business in the state of Wisconsin, understanding liquidated damages are necessary for a variety of issues that may arise during the course of your ownership.

What are liquidated damages

Liquidated damages according to business law involve damages that are owed to a party involved in a contractual agreement that are difficult to assert or calculate based on surrounding circumstances. In cases of liquidated damages, parties may sue for a data breach, a breach of contract, or even due to another partner or party sharing trade secrets, which in turn affect long-term revenue generation. Qualities most commonly associated with liquidated damages include:

  • Assets and/or profits that are difficult to assert and/or estimate
  • When a loss is either challenging and/or impossible to prove
  • When a breach of contract occurs without any ability to stop or prevent financial fallout

When are liquidated damages necessary?

Liquidated damage provisions in business contracts are not always enforced, nor are they always taken seriously, depending on the individual case that is presented and whether or not a judge is able to verify a loss of revenue potential. Liquidated damage cases are often litigated when there are multiple parties involved in a business dispute.

In addition to traditional business partner disputes, liquidated damages are also common when trade secrets, pricing, or other non-disclosure agreements are breached, leading to an unknown loss of revenue to the business itself.