Amendment

What Is an Amendment?

An amendment is a change or addition to the terms of a contract, law, government regulatory filing, or other documents.

Understanding Amendments

A contractual amendment generally does not substantially alter or reverse the terms of the document it is attached to. If an agreement needs significant changes, a new contract rather than an amendment generally is drawn up. Any such document can be amended with the consent of the parties involved.

One of the most common types of amendment is a simple extension of the terms of a contract. An amendment might change a price or a deadline, correct a misstatement in the document, or address an unforeseen issue. The parts of the contract that are not amended remain in force. Amendments to documents filed with government regulators are common. For example, when a business changes its name or its ownership, an amendment must be filed with the appropriate government agencies.

Financial documents can be amended as well. Publicly traded companies must report their earnings results to the Securities and Exchange Commission (SEC) on a quarterly as well as annual basis. This report is available to all of the company's stockholders and the general public. If a number is incorrect or a material factor is discovered, an amendment to the earnings report must be filed. In this case, the amendment is called a restatement of financials.

An amendment to SEC files can be more consequential than most. The SEC could penalize the company for misstating its earnings. The amended earnings could trigger a selloff by shareholders or even lead to a class-action lawsuit against the company.

Amendments allow laws and policies to be refined over time rather than replaced outright.

Local, state, and federal laws can be changed through the ratification of amendments. Legislative bodies in the U.S. operate on the premise that laws and policies may be refined over time. This can be done through new legislation or amendments to existing legislation.

Amendments may be introduced to address circumstances and events that were not foreseen when a piece of legislation was initially signed into law. The most familiar example of this process is, of course, the U.S. Constitution, which has been amended 27 times since it was ratified in 1788. The first 10 of those amendments constitute the Bill of Rights. Amendments are often added while proposed laws are being debated and before the final votes are taken.

Amendments frequently are used to address events that were unforeseen when the original document was created. For example, banking, commerce, and taxation laws and regulations were written long before the internet existed. Many of these laws and regulations had to be amended in order to facilitate (and regulate) online payment systems, electronic signatures, online stock transactions, and more.