Legal and business terms, plainly explained

#AI bias — when an AI system produces skewed or unfair outputs because of patterns in the data it was trained on, a key risk to manage when using AI for decisions affecting people.

#AI contract review — using AI to review a contract's terms, usually as a first pass rather than a replacement for legal judgement.

#AI governance — the policies and controls a business puts in place to manage the risk of using AI safely and compliantly.

#All reasonable endeavours — sits between the two above — more than reasonable endeavours, short of best endeavours; the exact meaning is often argued over, so worth defining precisely rather than relying on the label.

#Alternative dispute resolution (ADR) — any way of resolving a dispute outside court, including mediation and arbitration.

#Alternative fee arrangement (AFA) — any pricing model other than pure hourly billing — fixed fees, capped fees, retainers, or a blend.

#Anticipatory breach — when a party makes clear, before performance is even due, that they won't honour the contract — letting the other side act immediately rather than wait for the actual breach.

#Arbitration — a private, binding process where an independent arbitrator decides the dispute instead of a court.

#Articles of association — the rulebook governing how a company is run, agreed by its shareholders.

#Asset purchase agreement — the contract governing the sale of a business's specific assets, rather than its shares — the buyer picks what it wants, rather than taking on the whole company.

#Assignment clause — sets out whether and how a party can transfer their rights under the contract to someone else.

#Battle of the forms — the dispute over whose standard terms apply when both parties try to contract on their own.

#Best endeavours — the strongest form of an effort obligation, requiring a party to take essentially every reasonable step to achieve something, even at real cost to themselves.

#Board resolution — a formal decision made by a company's directors, recorded in writing.

#Boilerplate — the standard clauses gathered near the end of a contract (notices, assignment, entire agreement and similar) — standard in placement, not necessarily in importance.

#Breach of contract — failing to do something the contract requires.

#Cap table — the record of who owns what percentage of a company, across all shareholders and option holders.

#Case management conference (CMC) — an early court hearing where a judge sets the timetable and ground rules for how the case will proceed.

#Certificate of incorporation — the document confirming a company legally exists, issued by Companies House on formation.

#Change of control clause — gives a party rights (often to terminate or renegotiate) if the other side is bought or its ownership changes.

#Choice of law clause — the contract term stating which country's law governs it. Also called a governing law clause.

#Claim form — the document that formally starts court proceedings.

#Client account — a separate bank account regulated firms must use to hold client money, kept apart from the firm's own funds.

#Cliff — an initial period (often 12 months) before which no options vest at all, even if the vesting schedule has started.

#Companies House — the UK government registrar of companies, where incorporation and filing records are held.

#Company secretary — the officer responsible for a company's statutory compliance and record-keeping (optional for most private companies now).

#Completion — the point at which a deal is legally finalised and ownership actually transfers.

#Condition precedent — something that must happen before a contractual obligation kicks in.

#Confidentiality clause — restricts what either party can say publicly about the deal or share with third parties.

#Confirmation statement — the annual filing confirming a company's details are up to date with Companies House.

#Conflict check — the process a lawyer or firm runs before taking on a client, to check they don't already act for someone whose interests would conflict.

#Conflict of interest — a situation where someone's personal interests could improperly influence a decision they're meant to make impartially.

#Consequential loss — indirect losses flowing from a breach (e.g. lost profits), often excluded from what a party can claim.

#Consideration — something of value exchanged between the parties, required for a contract to be legally binding under English law.

#Consultancy agreement — the agreement setting out the terms on which a self-employed contractor provides services, distinct from an employment relationship.

#Contract analysis software — AI tools that scan contracts to flag risks, extract key terms or check compliance.

#Copyright — the automatic right protecting original creative work, like writing, code or design, from being copied without permission.

#Corporation tax — the tax a limited company pays on its profits.

#Costs — the legal fees and expenses of a case; in England the losing party usually pays a contribution to the winner's costs.

#Counterclaim — a claim brought by the defendant back against the claimant in the same proceedings.

#Counterparts clause — allows the parties to sign separate copies of the same document, which together form one binding agreement.

#Cure period — a window given to a party in breach to fix the problem before the other side can terminate.

#Data breach — an incident where personal data is lost, stolen or accessed without permission, triggering notification duties under UK GDPR.

#Data controller — the organisation that decides why and how personal data is processed.

#Data processing agreement (DPA) — the contract required between a data controller and a data processor, setting out how personal data must be handled.

#Data processor — an organisation that processes personal data on behalf of a data controller, under its instructions.

#Data protection impact assessment (DPIA) — a structured assessment of privacy risk required before certain higher-risk data processing activities.

#Default judgment — a judgment entered automatically because the other side failed to respond in time.

#Defence — the formal response setting out why the claim should fail, in whole or in part.

#Dilution — the reduction in existing shareholders' percentage ownership when new shares are issued.

#Director's duties — the legal obligations directors owe the company, including acting in its best interests and avoiding conflicts of interest.

#Disclosure — the stage of litigation where both sides exchange the documents relevant to the case, including ones that don't help their own side.

#Disclosure letter — a document accompanying warranties in a sale, listing specific facts that qualify or exclude them.

#Disqualifying event — something that causes an EMI option to lose its tax advantages, such as the company or employee falling outside the scheme's qualifying conditions — a real risk if not monitored.

#Distribution agreement — a contract appointing a business to sell or distribute another's products, usually in a defined territory.

#Document automation — software that generates documents automatically from templates and inputted data, rather than drafting from scratch each time.

#Drag-along rights — let majority shareholders force minority shareholders to sell their shares too, if the majority accepts an offer for the company.

#Due diligence — the investigation a buyer or investor carries out into a business before completing a deal, to check what they're actually getting.

#Earn-out — part of the price for a business held back and paid later, contingent on the business hitting agreed targets after the sale.

#EMI scheme (Enterprise Management Incentive) — a UK tax-advantaged share option scheme for smaller companies, letting staff earn options with favourable tax treatment.

#Employee Ownership Trust (EOT) — a trust structure that can own a controlling stake in a company on behalf of its employees, increasingly used as a tax-efficient exit route for owners.

#Employment contract — the agreement setting out the terms on which someone is employed.

#Employment status — whether someone is legally an employee, worker or self-employed, which changes what rights and obligations apply.

#Enforcement of judgment — the process of making a losing party actually pay or comply with a court judgment.

#Engagement letter — the document setting out the terms on which a lawyer or firm is instructed for a specific piece of work — scope, fees, responsibilities.

#Entire agreement clause — states the written contract is the whole deal, so earlier promises or discussions don't count.

#Estoppel — a rule preventing someone from going back on a promise or representation the other side reasonably relied on, even without a formal contract term covering it.

#Exclusive jurisdiction — a clause naming one court, and only that court, for any dispute.

#Exclusivity clause — restricts one or both parties from dealing with anyone else in a defined market or category while the contract runs.

#Execution as a deed — signing a document in the more formal manner the law requires for certain transactions (e.g. property, some guarantees), with witnessing requirements and a longer limitation period than a simple contract.

#Exercise price — the price an option holder pays per share when they convert their option into an actual share.

#Fast track — the court track for money claims over £10,000 and up to £25,000, with a trial of a day at most and fixed recoverable costs. See how to sue a business.

#Fiduciary duty — a duty to act in good faith and in the best interests of another party, owed for example by directors to their company.

#Fixed fee — an agreed price for a piece of work, set in advance regardless of how long it takes.

#Force majeure — a clause excusing a party from performing the contract when an extraordinary event outside their control (e.g. war, natural disaster) makes it impossible.

#Fractional general counsel — a senior lawyer acting as a company's head of legal part-time, on a fixed fee, instead of as a full-time hire.

#Framework agreement — a contract setting the ground rules for a series of future deals, so each one doesn't need renegotiating from scratch.

#Freezing order — a court order preventing someone from disposing of their assets before a judgment can be enforced against them.

#Frustration of contract — when an unforeseen event makes performance genuinely impossible or radically different from what was agreed, automatically ending the contract — distinct from force majeure, which is a contractual clause rather than a rule of law.

#General counsel — the senior lawyer leading a company's in-house legal function.

#Generative AI — AI that creates new content — text, images, code — rather than just analysing or classifying existing data.

#Good faith obligation — a duty to deal honestly and fairly with the other party; English law doesn't imply this generally, so if it's wanted it needs to be written in.

#Good leaver / bad leaver — provisions setting out what happens to someone's shares or options if they leave the company, with better terms for a "good" leaver (e.g. redundancy) than a "bad" one (e.g. dismissal for cause).

#Governing law — the country's legal rules used to interpret a contract and decide the parties' rights under it.

#Gross negligence / wilful misconduct — a higher standard of fault than ordinary negligence, often carved out of liability caps so a party can't limit its liability for genuinely reckless or deliberate wrongdoing.

#Hallucination — when an AI model generates plausible-sounding but false information, a known risk when using AI for legal research.

#Heads of terms — a short document setting out the key commercial points agreed before the full contract is drafted, usually not legally binding.

#HMRC valuation — the agreed value HMRC accepts for a company's shares when EMI options are granted, which fixes the tax treatment for the options.

#Holding company / subsidiary — a holding company owns and controls one or more other companies (its subsidiaries), often used to separate risk or structure a group.

#Hourly rate — billing for legal work based on time spent, at an agreed rate per hour.

#Human in the loop — a design principle where AI output is checked by a person before it's relied on or acted on.

#Implied terms — obligations that apply to a contract automatically, by law or by custom, even though the parties never wrote them down.

#In-house counsel — a lawyer employed directly by a business, rather than at a law firm.

#Indemnity — a promise to compensate the other party for a specific loss, regardless of fault.

#Injunction — a court order requiring someone to do, or stop doing, something.

#Intellectual property (IP) — legal rights over creations of the mind, such as inventions, brands and written or creative work.

#Interim injunction — a temporary injunction granted before the full case is heard, to preserve the situation in the meantime.

#Intermediate track — the court track for money claims over £25,000 and up to £100,000 which can be tried in three days or fewer, with limits on witness statements and expert reports and fixed recoverable costs by complexity band. See the intermediate track.

#IP ownership / IP indemnity clause — sets out who owns anything created under the contract, and who's responsible if it turns out to infringe someone else's intellectual property.

#Jurisdiction — which country's courts have the power to hear a dispute about a contract.

#Large language model (LLM) — the type of AI model (like GPT-family models) that generates and understands text, underlying most legal AI tools.

#Legal advisory / legal consultancy — a business providing legal expertise and support without being a regulated law firm; distinct in what it can and can't do, not in the quality of the advice.

#Legal AI — artificial intelligence tools applied to legal work, such as contract review, research or drafting.

#Legal process outsourcing (LPO) — delegating specific legal tasks or processes to an external provider.

#Legal retainer — an arrangement where a business pays a fixed regular fee to keep a lawyer available, instead of paying by the hour each time.

#Legal tech — technology built specifically for legal work, from AI drafting tools to case management software.

#Letter before action — a formal letter setting out a claim before court proceedings start, usually required under the relevant pre-action protocol.

#Letter of intent — a document signalling serious intention to enter a deal, often used to unlock early-stage work before contracts are finalised.

#Licensing agreement — a contract allowing one party to use another's intellectual property, under agreed terms, without buying it outright.

#Limitation of liability — a clause capping how much one party can be made to pay the other if something goes wrong.

#Limitation period — the time limit within which a claim must be brought, after which it becomes time-barred.

#Limited company — a business structure giving its owners limited liability, separate in law from the people who run it.

#Liquidated damages — a pre-agreed sum payable if a specific breach occurs, set in the contract rather than argued over later.

#Litigation funding — third-party money used to fund a claim, usually repaid from the proceeds if the claim succeeds, sometimes used to make an otherwise unaffordable claim possible.

#LLP (limited liability partnership) — a partnership structure giving its partners limited liability, similar to a company.

#Machine learning — the branch of AI where systems improve at a task from data and experience, rather than being explicitly programmed for every case.

#Material breach — a breach serious enough to affect the core purpose of the contract, often giving the other side the right to terminate.

#Mediation — a voluntary process where an independent third party helps disputing parties reach their own settlement.

#Memorandum of understanding (MOU) — similar to heads of terms; records an agreement in principle, usually without binding legal force.

#Mitigation of loss — the injured party's duty, when a contract is breached, to take reasonable steps to limit their own losses rather than letting them run up.

#Multi-track — the default court track for claims over £100,000 or anything too complex for the other tracks, managed case by case by the court, usually with costs budgets.

#NDA (non-disclosure agreement) — a standalone contract, or a clause, protecting confidential information shared between parties.

#Non-compete clause — restricts a party from competing with the other for a set time and area after the relationship ends.

#Non-exclusive jurisdiction — a clause naming a preferred court but leaving the parties free to sue elsewhere too.

#Non-solicitation clause — restricts a party from poaching the other's staff or customers.

#Notice period — how much warning one party must give the other before ending the contract.

#Novation — replacing one party in a contract with a new one, with everyone's agreement, so the new party takes on the same rights and obligations.

#Option pool — the block of shares set aside for future option grants to staff.

#Ordinary resolution / special resolution — an ordinary resolution needs a simple majority of shareholders (over 50%); a special resolution, for bigger decisions, needs at least 75%.

#Ordinary shares — the standard class of shares, usually carrying voting rights and a share of profits.

#Outsourced legal department — using an external provider to cover the ongoing legal function a business would otherwise need to hire for internally.

#Part 36 offer — a formal settlement offer with cost consequences if not beaten at trial, designed to encourage early resolution.

#Particulars of claim — the document setting out the facts and legal basis of a claim in detail.

#Partnership — two or more people running a business together, typically sharing liability unless structured otherwise.

#Patent — a registered right protecting a genuinely new invention, giving the owner the exclusive right to use it for a set period.

#Penalty clause — a liquidated damages clause set so high it's designed to punish rather than compensate — generally unenforceable in England.

#Persons with significant control (PSC) — individuals who own or control more than 25% of a company, required to be recorded on a public register.

#Pre-action protocol — the rules parties must follow before issuing court proceedings, designed to encourage early settlement.

#Pre-emption rights — the right of existing shareholders to be offered new shares first, before they're offered to anyone else.

#Preference shares — shares with priority over ordinary shares for dividends or on a sale, usually with limited voting rights.

#Private limited company (Ltd) / public limited company (PLC) — a private company can't offer shares to the public and has lighter regulation; a PLC can, and carries extra compliance obligations.

#Privity of contract — the principle that only the parties to a contract can sue on it or be sued under it (subject to the third party rights exception above).

#Professional indemnity insurance — insurance covering a professional against claims of negligence or error in their advice.

#Prompt — the instruction given to an AI model to get a particular output.

#Prompt engineering — the skill of writing instructions to an AI model in a way that reliably gets the output you actually want.

#Public liability / employers' liability insurance — public liability covers claims from third parties injured or harmed by your business; employers' liability (compulsory for most employers) covers claims from your own staff.

#RAG (retrieval-augmented generation) — an AI technique where the model's answer is grounded in specific documents it's given, rather than relying only on what it learned during training — the basis of most reliable legal AI tools.

#Reasonable endeavours — a lighter effort obligation than best endeavours, requiring one sensible course of action rather than every possible one.

#Recitals — the introductory paragraphs at the start of a contract explaining the background and purpose of the deal.

#Registered office — a company's official address for legal correspondence, recorded at Companies House.

#Regulated legal services — legal services covered by statutory regulation, generally requiring the provider to be authorised.

#Representation — a statement of fact made to induce the other party to enter the contract; if false, can lead to a claim for misrepresentation.

#Repudiatory breach — a breach so fundamental it shows one party no longer intends to be bound, entitling the other to end the contract and claim damages.

#Reserved legal activities — specific activities (like conducting litigation or probate work) that only certain regulated individuals can carry out by law.

#Retainer fee — the amount paid under a retainer arrangement.

#Retention of title clause — lets a seller keep legal ownership of goods until they're paid for in full, even after the goods have been delivered.

#Satisfactory quality / fit for purpose — statutory implied terms (from the Sale of Goods Act and Consumer Rights Act) requiring goods sold to meet a basic standard, whether or not the contract mentions it.

#Schedule — an annexe at the back of a contract holding detail too bulky for the main body, such as specifications or pricing.

#Scope of work — the defined boundaries of what a piece of legal work does and doesn't cover.

#Security for costs — a court order requiring a claimant to put up money upfront to cover the defendant's costs if the claim fails, often used where a claimant might not be able to pay if they lose.

#Service level agreement (SLA) — sets out the standard of service required, usually with measurable targets and consequences for missing them.

#Set-off clause — lets a party deduct money it's owed from money it owes the other side, rather than paying in full and claiming separately.

#Settlement agreement — a contract recording the terms on which a dispute is resolved, usually including a release of further claims.

#Severability clause — if one part of the contract is found invalid, this keeps the rest of it standing.

#Share capital — the total value of shares a company has issued.

#Share option — the right to buy shares at a set price in future, commonly used to reward and retain staff.

#Share purchase agreement — the contract governing the sale of a company's shares.

#Shareholders' agreement — a private contract between shareholders covering things the articles don't, like exit rights and decision-making.

#Small claims track — the court process for lower-value, simpler claims, generally without lawyers' costs being recoverable. Silva's guide to suing a business covers where it ends and the other tracks begin.

#Sole and exclusive remedy — a clause stating one remedy is the only one available for a particular problem, shutting the door on claiming anything else for it.

#Sole trader — an individual running a business alone, with no legal separation between them and the business.

#Specific performance — a court order requiring a party to actually carry out their contractual obligations, rather than just pay damages.

#SRA (Solicitors Regulation Authority) — the body that regulates solicitors and law firms in England and Wales.

#Standard terms and conditions — the default terms a business applies to every deal unless specifically varied.

#Statute of limitations — the law setting out limitation periods for different types of claim.

#Step-in rights — let one party (often a funder or customer) take over performance of the contract directly if the other side fails to deliver.

#Strike out — a court striking out all or part of a claim or defence because it discloses no real case, without needing a full trial.

#Summary judgment — a court decision made without a full trial, where one side's case has no real prospect of success.

#Survival clause — lists which obligations (like confidentiality) continue to apply even after the contract ends.

#Tag-along rights — let minority shareholders join a sale on the same terms if majority shareholders sell theirs.

#Termination for cause — lets a party end the contract because the other side has done something specific, like breaching a key term.

#Termination for convenience — lets a party end the contract without needing a reason, usually on notice.

#Terms of business — the standard terms a business applies to its dealings with clients or customers.

#Terms of engagement — the standing terms that apply across an ongoing relationship with a legal adviser, often referenced by each new engagement letter.

#Third party rights — whether someone who isn't a party to the contract can enforce any of its terms; UK contracts usually exclude this unless deliberately included.

#Time is of the essence — a clause making deadlines strict, so missing one is a breach serious enough to end the contract, not just a minor slip.

#Tomlin order — a way of recording a settlement as a court order, keeping the terms confidential in a separate schedule while still being enforceable.

#Trade secret / confidential information — commercially valuable information kept secret, protected by law as long as it stays confidential.

#Trademark — a registered right protecting a brand name, logo or other identifying mark.

#UK GDPR — the UK's data protection law, governing how personal data must be collected, used and protected.

#Unlimited liability — where no cap applies, so a party is exposed to the full extent of any loss caused — usually reserved in a contract for the most serious breaches (fraud, gross negligence, confidentiality).

#Unregulated legal services — legal support provided outside the reserved activities that only regulated solicitors can carry out — a real and growing category, and the one Silva sits in as an advisory rather than a law firm.

#UTR (unique taxpayer reference) — the number HMRC uses to identify a taxpayer, individual or business.

#Variation clause — sets out how the contract can be changed after signing, typically requiring written agreement from both parties.

#VAT registration — registering a business to charge and reclaim VAT, required once turnover passes the threshold.

#Vesting — the process by which an option holder earns the right to exercise their options over time, rather than all at once.

#Waiver — giving up a right under the contract, either deliberately or by not enforcing it — contracts usually include a clause stating that not enforcing a right once doesn't waive it permanently.

#Warranties and indemnities — the promises a seller gives a buyer about the state of the business, and the compensation owed if they turn out to be false.

#Warranty — a factual promise about the state of something; if untrue, the other party can claim damages.

#Without prejudice — a label on correspondence meaning it can't be shown to a court as evidence, used to allow frank settlement discussions.

#Without prejudice save as to costs — settlement correspondence that can't be shown to the court on the substance of the dispute, but can be shown afterwards when the court decides who pays the costs.

#Witness statement — a written account of what a witness saw or knows, used as their evidence in place of (or alongside) speaking live at trial.

#Workflow automation — using software to handle repetitive process steps automatically, freeing people for higher-value work.

#Written resolution — a decision made by shareholders in writing, without holding a physical meeting.