Questions Legal

What is consideration in business law?


Anjana Roy

Silent smiling woman

Consideration is something which has a monetary value and which is voluntarily exchanged for an act, benefit, interest, right, promise or goods and services etc. It is a vital element as every valid contract requires a certain consideration for all the involved parties. To be more practical, consideration is the element due to which a contract is formed. In other words, it is an essential reason for the parties to enter into contracts.

For example, you go to a shop and asked the shopkeeper to give you a particular thing and to get that thing you pay the shopkeeper a consideration. Here, you both enter into a contract wherein the shopkeeper gives you something in return for a consideration and both the parties are benefited from the contract. Consideration must be of value to the parties involved in the contract and is exchanged for the performance or promise of the performance by the other party. Most often, goods and services are exchanged in a contract, but consideration can be anything that the parties agree to.


Till now the word contract has risen many times, so what does a contract mean? A contract is just a term used when two or more than two parties enter into a mutual agreement to perform something or promise to perform something. It has legal dimensions. A valid contract must have a consideration otherwise the contract will be null and void, i.e., it will not be constituted for a valid contract.

A contract involves offer and acceptance. A party initiates the contract by making an offer to another party and when another party gives its acceptance, and then the contract comes into existence. In between these two activities, both the parties also agree to some consideration. In other words, when the offer is made, then the offeror and the offeree negotiate and agree upon a consideration and then the acceptance is given by the other party thereby completing the contract.

Significance of consideration in business law

 Consideration in business law is nothing different from consideration in a contract. For a consideration to happen there should be a valid contract. Also, for a valid contract to happen there should be a consideration. So, it can be inferred that both the terms are complementary to each other. It should also be noted that illegal or immoral acts will not be considered to serve as consideration. So, the contract must be legal. Consideration in a contract is generally in monetary terms but it can either be a promise for the performance of a certain actor refraining someone from doing a certain act.

In a nutshell, consideration simply means a value given in exchange for entering the contract.

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