The definitions provided in this glossary are for general informational purposes only and do not constitute legal definitions. They are simplified explanations intended to help users understand common legal terms in everyday language.
This glossary is not a substitute for legal advice, formal legal definitions or consultation with a qualified legal professional. Legal terms may have different meanings depending on the context, jurisdiction or applicable laws. For official interpretations, please refer to the relevant statutes, legal texts or consult us.
A
Acquisition – When one company buys another company’s shares or assets.
Affiliate – A business that is related to another through ownership or control.
Agent – A person or company authorised to act on behalf of another (usually called the principal).
Amendment – A change or addition made to a contract or legal document.
Amortisation – The process of spreading the cost of an intangible asset (like a patent or trademark) over its useful life. It is similar to depreciation but applies to non-physical assets.
Arbitration Clause – A part of a contract stating that disputes will be settled through arbitration, not litigation.
Articles of Association – A legal document that outlines how a company is run, including rules for directors and shareholders.
Assignment – The transfer of rights or obligations from one party to another under a contract.
Audit – An official examination of financial records or systems to ensure accuracy and compliance.
B
Balance Sheet – A financial statement showing a company’s assets, liabilities and equity at a specific point in time.
Bank Guarantee – A promise by a bank to pay a certain amount if a client fails to meet a contractual obligation.
Board of Directors – A group of individuals elected to represent shareholders and oversee company management.
Boilerplate Clause – Standard legal language commonly used in contracts.
Breach of Contract – Failure to do what a contract requires, without a legal excuse.
Business Name – The name under which a company or sole proprietor does business.
C
Call Option– A financial contract that gives the buyer (or holder) the right, but not the obligation, to purchase an underlying asset (such as shares of a company, commodities or currency) at a specified price (the strike price) on or before a specific date (the expiration date).
Capital – Money or assets used to start and run a business.
Carriage of Goods – The transportation of goods by land, air, or water.
Certificate of Incorporation – A legal document showing that a company has been registered.
Charge – A form of security interest over a company’s assets to secure a debt.
Charterparty – A contract between a shipowner and a charterer for the use of a vessel.
Claim – A demand for something owed, usually money or performance under a contract.
Collateral – Property pledged as security for a loan.
Commercial Invoice – A document used in international trade that lists the goods being sold and shipped.
Common Seal – A stamp used by a company to formally execute documents.
Competition and Anti-Trust Law – Laws that promote fair competition and prevent monopolies or unfair practices.
Confidentiality Agreement (or Non-Disclosure Agreement) – A contract where parties agree not to disclose certain information.
Consideration – Something of value exchanged between parties in a contract.
Consignment – Goods sent by a seller to an agent or retailer to be sold on the seller’s behalf.
Consignee – The person or company to whom goods are delivered.
Consignor – The person or company that sends goods to a consignee.
Contract – A legally binding agreement between two or more parties.
Convertible Note – A financial instrument that starts as debt but can convert into equity under certain conditions.
Cross-default Clause – A contract term that considers a default under one agreement to be a default under another.
D
Debenture – A type of loan agreement or bond that is backed by general credit, not specific assets.
Debt Financing – Raising money by borrowing, typically through loans or bonds.
Deed – A special type of formal legal document that must follow specific requirements (like being signed and often witnessed) to be valid. It is commonly used to transfer property ownership or create binding obligations, even without the exchange of payment.
Default – Failure to meet a legal obligation, especially in loans or contracts.
Depreciation – The gradual reduction in the value of a physical asset (like machinery or vehicles) over time due to wear and tear or ageing. It is used in accounting to reflect the asset’s declining value.
Derivative – A financial contract that derives its value from an underlying asset.
Director – A person appointed to manage a company’s affairs at the board level.
Dispute Resolution Clause – A contract term explaining how disagreements will be handled (for example, through mediation or arbitration).
Dividends – Payments made to shareholders from a company’s profits.
E
Earnings Before Interest and Tax (EBIT) – A financial measure of a company’s profitability before interest and tax expenses.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) – A financial measure that shows a company’s operating profitability by excluding the costs of interest, taxes, and non-cash expenses like depreciation and amortisation. It helps assess how well a company performs in its core business activities.
Encumbrance – A legal claim, right or liability attached to property that may affect its use or transfer, such as a mortgage, lien or easement. It is usually held by someone other than the property owner.
Equity – Ownership in a company, represented by shares.
Escrow – Money or documents held by a third party until certain conditions are met.
Estoppel – A legal principle preventing someone from going back on something they previously said or agreed to.
Ex Works (EXW) – An international trade term meaning the buyer takes responsibility once goods are made available at the seller’s premises, allocating the most risk and cost obligations to the buyer.
Exclusion Clause (or Limitation of Liability Clause) – A part of a contract that limits one party’s liability.
F
Fiduciary Duty – A legal duty to act in someone else’s best interest, typically held by directors or trustees.
Force Majeure – A contract clause that frees both parties from obligations due to unforeseeable events like natural disasters.
Franchise – A business arrangement where one party (franchisee) uses another’s (franchisor’s) brand and business model.
Free Carrier (FCA) – A shipping term where the seller delivers goods to a carrier chosen by the buyer.
G
Governing Law Clause – A contract clause stating which jurisdiction’s (usually a country) laws will apply to the agreement.
Grievance Procedure – A formal process for resolving complaints, often used in employment or supply contracts.
Guarantee – A legal commitment to take responsibility for someone else’s debt or obligation if they default.
H
Holding Company – A company that owns enough voting stock in another company to control its policies and management.
I
Indemnity – A promise to compensate someone for loss or damage.
In Duplum Rule – A legal principle that limits the amount of interest a lender can recover to no more than the original loan amount.
Insolvency – A situation where a person or business cannot pay its debts.
Intellectual Property (IP) – Creations of the mind (like inventions or logos) protected by law.
Interest – The cost of borrowing money, usually expressed as a percentage.
Investment Agreement – A contract between a company and investors outlining the terms of investment.
Invoice – A document requesting payment for goods or services provided.
J
Joint Venture – A business arrangement where two or more parties work together on a project, sharing profits and risks.
Jurisdiction – The authority of a court or legal body to decide on a matter.
K
Know Your Customer (KYC) – A process of verifying the identity of clients to prevent fraud or money laundering.
L
Lading (Bill of Lading) – A document used in shipping to acknowledge receipt of goods and terms of transport.
Lease – A contract to rent property or equipment.
Letter of Credit – A bank’s promise to pay a seller on behalf of a buyer once certain conditions are met.
Liability – Legal responsibility for something, like debts or damages.
Liquidation – The process of closing a business and selling its assets to pay debts.
Logistics – The management of the movement of goods from origin to destination.
M
Majority Shareholder – A person or entity that owns more than 50% of a company’s shares.
Management Agreement – A contract giving someone authority to manage a business or asset.
Material Adverse Change (MAC) – A clause allowing termination of a contract if a significant negative change occurs.
Memorandum of Association – A document that sets out a company’s structure and purpose.
Merger – When two companies combine into one.
Minority Shareholder – A person or entity owning less than 50% of a company’s shares.
Mortgage – A loan secured by property (in Kenya, it may be referred to as a Charge).
N
Negotiable Instrument – A document that promises payment (for example, a cheque or a promissory note) and can be transferred.
Non-Compete Clause – A term in a contract that prevents someone from working with competitors or as a competitor.
Non-Disclosure Agreement (NDA) – A contract to keep shared information private.
O
Offer – A proposal to enter into a legal agreement.
Offshore Company – A business registered in a foreign country, often for tax or regulatory reasons.
Option – The right to buy or sell an asset under specific terms.
Overdraft – When a bank account balance goes below zero and the bank covers the shortfall.
P
Partnership – A business owned and run by two or more people.
Patent – A legal right to exclude others from making or using an invention for a certain period.
Performance Bond – A guarantee that a contractor will complete a project as agreed.
Power of Attorney – A document giving someone authority to act for another.
Principal – The main party in a contract, or the amount of money borrowed (not including interest).
Procurement – The process of buying goods or services.
Promissory Note – A written promise to pay a certain amount at a specific time.
Prospectus – A document issued to investors with details about an investment offering.
Put Option – A financial contract that gives the buyer (or holder) the right, but not the obligation, to sell an underlying asset (such as shares of a company, commodities or currency) at a specified price (the strike price) on or before a specific date (the expiration date).
Q
Quorum – The minimum number of people needed to conduct official business at a meeting.
Quote (Quotation) – A formal statement of price for goods or services.
R
Registered Office – The official address of a company, used for legal correspondence.
Rescission – The cancellation of a contract, returning all parties to their original positions.
Resolution – A formal decision made by a company’s board or shareholders.
Retention of Title Clause – A clause stating that goods remain the seller’s property until paid for.
Risk of Loss Clause – A clause specifying the party responsible for goods that are lost or damaged during delivery.
S
SaaS Agreement – A contract for using software hosted online (Software as a Service).
Sale of Goods Act (SOGA) – The law regulating the sale and purchase of goods.
Securities – Tradable financial instruments like shares, bonds or debentures.
Shareholders’ Agreement – A contract between a company’s owners about how the company will be run.
Shipping Terms (Incoterms) – International rules defining responsibilities between buyer and seller in transport.
Sole Proprietor – A business owned and operated by one individual in their own capacity.
Statutory Audit – A legally required review of a company’s records.
Subrogation – The right to step into someone else’s legal position.
T
Takeover – The acquisition of one company by another.
Term Sheet – A summary of key terms in a proposed deal.
Trademark – A symbol, word or phrase legally registered to represent a company or product.
Transfer Pricing – The pricing of goods or services sold between related business entities.
Turnover – Total sales or revenue over a specific time period.
U
Underwriter – A person or company that evaluates and takes on financial risk, often in insurance or securities.
Unlimited Liability – A situation where the owner is fully responsible for business debts.
Usury – Charging illegally high interest on a loan.
V
Vendor – A person or business that sells goods or services.
Vesting – Earning the right to shares or benefits, often over time.
Voidable Contract – A contract that can be legally cancelled by one of the parties.
W
Waiver – Giving up a right or claim voluntarily.
Warrant – A security that allows the holder to buy shares at a set price in the future.
Winding Up – The process of closing a business, settling debts and distributing assets.