ContractsCounsel Logo

Definitions Clause

Get free proposals from vetted lawyers in our marketplace.

No upfront payment required. Pay only if you hire.
Home Contract Clauses Definitions Clause

Jump to Section

Definitions Clause Defined

Definitions clauses, also known as contract definitions, are the defined terms in a legal document. Drafting definitions clauses mitigates the chance of misunderstanding interpretations among the parties. The defined terms section should be unambiguous and written in plain language.

Here is an article about the use of the term definition clause.

Definitions Clause Explained

Definitions clauses contain as many or as few contract definitions as necessary. They can affect the outcome of your relationship and any potential disputes.

For example, an employment agreement may define critical terms in the definitions clause, including:

  • Employee
  • Full-time
  • Pay rate
  • Manager
  • Liability

Each term has a corresponding definition in case applicability questions arise in the future. Contract parties may refer to the definitions clause to answer specific questions.

Read this post about definitions clause principles.

Purpose of a Definitions Clause

The most significant purpose of a definitions clause is that they clarify contract-specific terms. It can also aid in future risk mitigation. When both parties understand expectations clearly, it’s easier to meet them.

Definitions Clause Examples

Examples of definitions clause use include:

  • Example 1: Defining employment definitions in a policy handbook
  • Example 2: Hospitals defining terms in a business associate agreement
  • Example 3: Software companies explaining terms in a privacy policy
  • Example 4: Business partnership agreements establishing term definitions
  • Example 5: Severance pay agreements defining key contract terms

Definitions Clause Samples

Sample 1 – Master Sales Agreement:


(a) Change of Control. The term “Change of Control” shall mean (i) any consolidation or merger involving the Company pursuant to which the Company’s stockholders own less than fifty percent of the voting securities of the surviving entity or (ii) the sale of all or substantially all of the assets of the Company.

(b) Exercise Period. This Warrant shall be exercisable, in whole or in part, during the term commencing on the closing date of a Qualified Equity Financing and ending on the expiration of this Warrant pursuant to Section 14 hereof.

(c) Holder. The term “Holder” shall mean any person or entity that shall be the registered holder of this Warrant.


Security Exchange Commission - Edgar Database, EX-10.33 5 dex1033.htm MASTER SALES AGREEMENT, Viewed April 5, 2021, < >.

Sample 2 – Asset Purchase Agreement:

Certain Definitions. For purposes of this Agreement, the term:

(a) “Buyer Material Adverse Effect” means any event, circumstance, occurrence, fact, condition, change or effect, in each of the foregoing cases at or before Closing, that, in the aggregate, (i) is or could reasonably be expected to become materially adverse to Buyer’s business, operations, results of operations, condition (financial or other), prospects, properties, tangible or intangible assets or liabilities of Buyer and its subsidiaries (taken as a whole), or (ii) materially impairs or could reasonably be expected to materially impair the ability of Buyer to consummate any of the transactions contemplated by this Agreement or any of the Transaction Documents; provided, however, that none of the following in and of itself shall be deemed a Buyer Material Adverse Effect:

(i) any failure on the part of Buyer to meet internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance (provided, however, that the facts leading to such failure shall be taken into account in determining whether there has been, or would be, a Buyer Material Adverse Effect);

(ii) any adverse effect (including any litigation, loss of employees, cancellation of or delay in customer orders, reduction in revenue or net income or disruption of business relationships) arising from:

(1) any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;

(2) provided that such event, change or action does not affect Buyer in a substantially disproportionate manner, other conditions affecting:

  1. a) the industry or any industry section in which Buyer operates or participates; or
  2. b) the U.S. economy or financial markets or any foreign economy or financial markets in any location where Buyer has material operations or sales;

(3) the taking of any action by Seller; or

(4) any breach of this Agreement by Seller.

(b) “Closing Balance Sheet” has the meaning assigned to such term in Section 4.5.

(c) “Closing Cash Consideration” means (i) $26,000,000 reduced by (ii) the Working Capital Shortfall, if any.

(d) “Closing Consideration” shall mean the Closing Cash Consideration and the Closing Share Consideration.

(e) “Closing Share Consideration” means a number of shares of Parent Common Stock equal to (x) $8,000,000 divided by (y) the Parent Stock Price (rounded to the nearest whole share, with 0.5 being rounded up).

(f) “Closing Working Capital Amount” means an amount equal to Seller’s (i) cash balance plus (ii) accounts receivable minus (iii) trade payables minus (iv) liabilities (excluding Deferred Revenue Liabilities and Retained Liabilities), in each case, as of the Closing Date and as indicated on the Closing Balance Sheet.


Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT, Viewed April 5, 2021, < >.

Sample 3 – Share Purchase Agreement:


For purposes of this Agreement, the following terms shall have the following meanings, unless the context clearly requires otherwise:

1.1 “ADS Appreciation Ratio” shall mean a percentage determined by multiplying 0.9 by the difference between (i) the quotient obtained by dividing the average of the regular session closing prices of Parent’s American Depositary Shares for the twenty (20) trading days after the announcement of Parent’s fourth quarter, fiscal year 2007 earnings results by US$24.05 and (ii) one (1). If the foregoing product results in a negative number, then the ADS Appreciation Ratio shall be zero (0).

1.2 “Action” shall mean any civil, criminal, regulatory or administrative claim, action, suit, arbitration, proceeding or investigation by or before any court or other Governmental Authority or any arbitration proceeding.

1.3 “Adjusted Cash Consideration” shall mean the Cash Consideration less the payments made to the Company Special Shareholders pursuant to Section 2.2(a).

1.4 “Adjusted Company Common Share Equivalents” shall mean the Company Common Share Equivalents less (i) the Company Common Shares issuable upon cash exercise of all of the Unvested Company In-the-Money Options and (ii) the Company Common Shares held by the Company Special Shareholders.

1.5 “Adjusted Korean GAAP” shall mean generally accepted accounting principles and practices as in effect from time to time in Korea, provided, however, that any gross revenue from a sale of product or service to a Distributor of the Company shall be recognized at the time of resale thereof to an end-customer.

1.6 “Ancillary Agreements” shall mean the Investment Agreement, Escrow Agreement, and Employment Agreements.

1.7 “Assets” shall have the meaning set forth in Section 7.21(a).


Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT, Viewed April 5, 2021, < >.

Common Contracts with Definitions Clauses

Every contract should take advantage of definitions clauses. However, the legal effect of definitions clauses impacts the result.

Common contracts with definitions clauses include:

Definitions Clause FAQs

Definitions clauses are a vital component of every contract. Check out the following definitions clause FAQs to learn more about this crucial contract section:

What is the difference between limitation of liability and indemnification?

There is one significant difference between limitation of liability and indemnification. Limitation of liability designates liability levels, whereas indemnification assigns responsibility for paying damages for negligence or breach of contract.

What is a normal liability cap?

A normal liability cap is the monetary “ceiling” placed on one party’s damages liability when under a contract. The anticipated amount depends upon your specific situation.

This article will help you understand the best practice use of definitions in a contract. If you have contract law questions in your state, a contract drafting lawyer can help.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some lawyers on our platform

Valerie L.

77 projects on CC
CC verified
View Profile

Forest H.

221 projects on CC
CC verified
View Profile

Sara S.

132 projects on CC
CC verified
View Profile

Tiffany O.

8 projects on CC
CC verified
View Profile

Meet some of our Lawyers

Laura H. on ContractsCounsel
View Laura
Member Since:
May 2, 2024

Laura H.

Free Consultation
17 Yrs Experience
Licensed in MA
Pacific McGeorge School of Law

Laura is a Massachusetts attorney with experience in document preparation, document review, and civil litigation.

Thomas C. on ContractsCounsel
View Thomas
Member Since:
May 3, 2024

Thomas C.

Free Consultation
New York, NY
20 Yrs Experience
Licensed in NY
Brooklyn Law School

I’ve been an attorney for over 20 years practicing mainly in the insurance industry. I’ve worked for law firms, insurance carriers, and insurance brokerages. I currently have my own firm where I help companies manage risk, insurance coverage issues and other business related matters.

Lisa C. on ContractsCounsel
View Lisa
Member Since:
May 8, 2024

Lisa C.

Free Consultation
Chicago, Illinois
27 Yrs Experience
Licensed in IL
Northwestern Pritzker School of Law

Lisa Copland Gordon is a seasoned litigator who has practiced law in Illinois for over 25 years. She is a graduate of Northwestern Pritzker School of Law, with a concentration in Civil Litigation and Dispute Resolution. Lisa earned her undergraduate degree from Princeton University. Lisa provides counsel to clients in real estate matters including purchasing, selling, HOA and lease issues. She also represents clients and small businesses in all Cook County courthouse locations.

Jazmin M. on ContractsCounsel
View Jazmin
Member Since:
May 8, 2024

Jazmin M.

Business Lawyer
Free Consultation
Norfolk, Virginia
3 Yrs Experience
Licensed in VA
Regent University School of Law

Hi, I'm Jazmin M. Allen, Esq., your local, 757 Hampton Roads Business Lawyer & Brand Publicist. I am on a mission to help entrepreneurs and new business owners form their business entities, develop their business plans, market their brands, and protect their billion-dollar ideas.

Harry R. on ContractsCounsel
View Harry
Member Since:
May 12, 2024

Harry R.

Founding Attorney
Free Consultation
Brooklyn, New York
7 Yrs Experience
Licensed in NJ, NY
Cardozo School of Law

Attorney with a legal practice focused on providing clarity to clients on matters relating to privacy/cybersecurity, marketing/media, and technology/blockchain.

Judy R. on ContractsCounsel
View Judy
Member Since:
May 18, 2024

Judy R.

Free Consultation
Columbus Ohio
25 Yrs Experience
Licensed in OH
Capital University Law School

I am passionate about legal research and writing. I have excellent research and writing skills. My entire legal career has centered around fact-finding, contract and statute interpretation, legal analysis, as well as legal research and writing.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review
CONTRACT lawyers by city

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Find lawyers and attorneys by city