DEFINITION of 'Amendment'

An amendment is a change to one of the terms of a contract or regulatory filing. Any type of contract can be amended, and any clause in a contract can be amended by the mutual agreement of both parties.

An amendment can also be a change to an existing or proposed law.

BREAKING DOWN 'Amendment'

A common type of amendment is to extend the term of a contract. An amendment might also change pricing, deadlines or ownership rights. The parts of the contract that are not amended remain in force. If the contract needs significant changes, it may be better to create a new contract than to amend the existing one.

Documents filed with government regulators can be amended to reflect an alteration in the condition of an entity. When businesses change names, they must file amendments with the government entities they registered with to reflect that change.

Why Companies May Need to File Amendments

Financial documents can be amended as well. Publicly traded companies must report their earnings results on a regular basis. It is possible that errors occur in that reporting. This can happen if accounting practices are not adhered to consistently, if overlooked material factors are later revealed, or if an intentional effort was made to fabricate earnings results.

After such elements are discovered, companies must amend financial statements with more accurate, corrected documentation. This is also called a restatement of financials. When such amendments are issued, companies may face repercussions from regulators and shareholders. The Securities and Exchange Commission could penalize the company for misstating its earnings. Amended earnings could trigger a selloff among shareholders or even class action lawsuits against the company for the loss of value shareholders face.

How Amendments Change Public Policy

Local, state, and federal laws can be changed through the ratification of amendments. Legislative bodies in the United States operate on the premise that the laws and policies they introduce may be refined over time. This can be done through new legislation or amendments that enact changes to or further clarify original legislation. Lawmakers can introduce amendments to bills as soon as they are introduced, debated, and discussed in the legislative process.

Amendments may be introduced to address circumstances and events not foreseen when a piece of legislation was initially signed into law. Before the rise of the Internet, commerce and taxation laws in many countries did not contain specific language to account for electronic commerce. Legislators later introduced amendments or entirely new laws in response to regulate digital transactions as the new form of commerce spread across state and international borders.

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