Background statement: Overview, definition, and example
What is a background statement?
A background statement is a section in a contract, proposal, or agreement that provides context and explains the circumstances or reasoning behind the document. It sets the stage for the agreement by outlining key facts, objectives, or the history that led to the need for the contract. A well-written background statement ensures that all parties have a shared understanding of the purpose and scope of the agreement before diving into the specific terms and conditions.
The background statement typically includes the parties involved, the reason for the agreement, and any relevant events that have occurred prior to the contract’s formation.
Why is a background statement important?
A background statement is important because it helps clarify the context and objectives of the agreement. It provides essential information that helps all parties involved understand why the contract is being entered into and how it fits into the broader scope of the business relationship. This clarity can prevent misunderstandings and disputes later on by ensuring that all parties are aligned from the outset.
For example, in a business partnership agreement, a background statement might explain the market need, the strategic goals of the partnership, or the previous discussions that led to the agreement, providing a solid foundation for the terms that follow.
Understanding background statement through an example
Imagine your business is entering into a joint venture agreement with another company. The background statement in the agreement may explain the market opportunity that led to the joint venture, the strengths of each company, and the goals both parties hope to achieve by working together. This gives everyone reading the agreement a clear picture of the business context, which helps guide their understanding of the specific clauses in the agreement.
In another example, if you're entering into a lease agreement for office space, the background statement might explain that your company is expanding and needs more space due to increased operations. It sets the tone for the lease terms, making clear why the space is necessary and providing a context for the rental rates and other terms.
Example of a background statement clause
Here’s what a background statement clause might look like in a contract:
“WHEREAS, the Parties acknowledge that [Party A] has developed a new technology that improves [specific process], and [Party B] possesses the expertise in [relevant area] required to bring the technology to market; and WHEREAS, the Parties wish to enter into this Agreement to jointly develop and commercialize said technology, with the goal of capturing market share in [industry] and generating mutual profits.”
Conclusion
A background statement provides valuable context and helps clarify the purpose of the agreement. It ensures that all parties understand the reason for the contract, the goals of the agreement, and the history that led to it. By including a background statement, you create a solid foundation for the terms and conditions that follow, making it easier for everyone to align on expectations and objectives.
Including a clear and concise background statement in your contracts or agreements can prevent confusion, improve communication, and provide a helpful reference point for future discussions or disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.