Short answer: A governing law clause says which country's, state's or jurisdiction's law will be used to interpret the contract. It does not necessarily say where a dispute must be heard.
Governing law affects how obligations, remedies and contract wording are interpreted. It is especially important in cross-border contracts, online services, international supply chains and group-company arrangements.
A UK customer and US supplier may agree English law, New York law or another legal system. The parties should then check whether the jurisdiction clause points to a matching court or forum.
Common mistakes include confusing governing law with jurisdiction, leaving the clause blank, accepting a law unfamiliar to both teams, and failing to consider local mandatory rules that may still apply.
See also governing law vs jurisdiction, jurisdiction clause and Ireland contract management checklist.
Reviewed for general contract operations use. This definition is general information and is not legal advice.