Capital letters are special things. They mark the beginnings of sentences. They show proper nouns are distinct from other nouns. They help differentiate a title from a sentence and an acronym from a word. All sorts of magic! In contracts, they have an additional job: They show that a term is defined somewhere within that contract.
For example, your limited liability company’s operating agreement describes how certain decisions are made. Most things require majority consent, which seems straight forward. But here’s the twist: There are three members. One member owns 52% of the company, and the other two own 24% each. Do you count the votes as the number of members voting or the percentage of ownership to determine if majority consent has been met? This is something you definitely will want to figure out and put in the operating agreement.
If you want “majority consent” to mean something specific, you define it in the agreement. It might be in a separate definitions sections such that the definition may look like this:
“Majority Consent” means the consent of member(s) together owning greater than fifty percent (50%) of the outstanding ownership interest.
Or maybe it is inline with the text like this:
All decisions shall be determined by the consent of greater than fifty percent (50%) of the number of member entities notwithstanding the ownership interests of the member entities (“Majority Consent”).
We have now made the definition of “majority consent” clear, and from now on in the operating agreement, we want to make sure that definition is used so we capitalize it. Every time we see Majority Consent, we know exactly what it means.
Hiccups occur not only when a term is not defined and thus not capitalized, but what if a term is capitalized but no definition can be found? That is a red flag that the provider of the contract may think a special definition is in play, but you don’t know what that is. Therefore, you highlight it and ask. Maybe it turns out it should not be capitalized because there is no special definition or maybe a definition needs to be added. Whatever the answer is, you will want to ask the question and get that answer.
In summary, be on the look out for capitalized terms in contracts. Find out what is and is not included in the meaning of that word. You may find that something that you expect to be included is not or shocked to find something included that you would never have guessed was meant by that word or term.