Description of transaction: Overview, definition, and example
What is a description of transaction?
A description of transaction refers to a detailed account or summary of the key elements and circumstances of a particular business or financial transaction. It outlines the nature of the transaction, the parties involved, the terms and conditions, and any relevant dates or actions taken. The description serves as a record or explanation of the transaction's purpose, structure, and impact, providing clarity and transparency for both internal and external stakeholders.
In legal or financial contexts, a description of transaction may be included in contracts, agreements, financial reports, or official filings to document the transaction. It may also describe the assets involved, the financial exchange, and any other pertinent details such as payment terms, warranties, or contingencies.
Why is a description of transaction important?
A description of transaction is important because it provides a clear and comprehensive overview of the transaction, helping all parties involved understand the details and implications. It ensures transparency by documenting the terms and conditions and helps avoid misunderstandings or disputes later on. For businesses, it serves as an official record that can be referenced for auditing, compliance, or legal purposes.
For external parties, such as investors, regulatory bodies, or stakeholders, a transaction description offers insight into the nature of the transaction and how it fits into the broader goals of the business. A well-documented transaction description helps in evaluating risks, benefits, and impacts, and can serve as evidence in the event of a dispute.
Understanding description of transaction through an example
Let’s say a company, ABC Corp., sells a piece of machinery to a buyer, XYZ Ltd. The description of the transaction might include the following:
- Parties involved: ABC Corp. (Seller) and XYZ Ltd. (Buyer).
- Nature of the transaction: Sale of machinery.
- Details of the transaction: ABC Corp. agreed to sell XYZ Ltd. a piece of industrial machinery for $100,000.
- Terms and conditions: Payment will be made within 30 days of delivery, and the machinery comes with a one-year warranty.
- Date of the transaction: The transaction was finalized on January 15, 2025, and delivery is scheduled for February 1, 2025.
- Additional notes: XYZ Ltd. is responsible for any customs duties related to the import of the machinery.
In this example, the transaction description serves as a clear summary of the sale, including all key details such as the involved parties, the asset being sold, and the payment terms.
In another example, a company may describe a merger or acquisition transaction. The description would detail the companies involved, the type of merger (e.g., asset purchase or stock swap), the agreed purchase price, and any regulatory approvals required.
An example of a "description of transaction" clause
Here’s how a "description of transaction" clause might appear in a contract:
“This Agreement describes the transaction by which the Seller agrees to sell and the Buyer agrees to purchase the Property, located at [address], for the sum of $[amount]. The Buyer shall pay 20% of the total purchase price as a deposit upon signing this Agreement, with the balance due at closing. The transaction shall be completed on or before [date].”
Conclusion
A description of transaction provides a clear, concise, and detailed explanation of the key aspects of a business or financial transaction. It helps ensure that all parties involved understand the terms and conditions and offers an official record of the event for future reference. Whether in a sale, merger, or other types of transactions, a well-crafted description helps avoid misunderstandings, supports transparency, and serves as a critical document for legal, financial, and compliance purposes.
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.