# Counterparty

Source: https://contracko.com/glossary/counterparty

# Counterparty

The other party to a contract from the perspective of the party referring to it.

## Definition

A counterparty is the entity on the other side of an agreement. Identifying the correct legal counterparty (the exact legal entity, not a brand or group name) is essential, because only that entity is bound and can be held liable. Counterparty due diligence checks solvency, authority to sign, and registration details before contracting.

## Example

> Before signing, the buyer verifies in the Chamber of Commerce register that the counterparty is the operating company, not a dormant holding entity.

## Why this is a business risk

Contracting with the wrong entity is a silent risk that only surfaces when you need to enforce. A trade name, brand, or parent company is not a legal entity, so a contract in that name may be worthless in enforcement proceedings. Insolvency risk also attaches to the counterparty: a financially weak shell company offers no practical remedy even if you win in court.

## How to manage it

- Always check the KvK (Chamber of Commerce) or equivalent register to confirm the full legal name and entity type before contracting.
- Verify who has authority to sign: not every employee or director is authorised, and an unsigned contract is unenforceable.
- For high-value deals, run a credit check or request recent financial statements to assess solvency before signing.
- Require a parent guarantee if the contracting entity is a thinly capitalised subsidiary.

### How Contracko helps

Contracko's contract repository stores the verified legal name and metadata for each counterparty alongside the contract, so your team always knows exactly who you are dealing with. The AI review flags contracts where the counterparty name is a trade name or appears inconsistent with the signing entity.

## Relevant for

[Financial Services](https://contracko.com/industries/financial-services)[Legal Services](https://contracko.com/industries/legal-services)[B2B SaaS Companies](https://contracko.com/industries/b2b-saas)

## Related clauses

- [Assignment Clause](https://contracko.com/clause-library/assignment)
- [Notices Clause](https://contracko.com/clause-library/notices)
- [Entire Agreement Clause](https://contracko.com/clause-library/entire-agreement)

## Related terms

- [Assignment](https://contracko.com/glossary/assignment)
- [Representation](https://contracko.com/glossary/representation)
- [Clause](https://contracko.com/glossary/clause)

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## Frequently asked questions

Common questions about this term.

- **Q:** Why does the exact counterparty name matter?
  **A:** Because only the named legal entity is bound. Contracting with a trade name or the wrong group company can leave you unable to enforce rights or recover losses.

- **Q:** How do you confirm signing authority?
  **A:** Check the KvK extract, which lists authorised signatories and any restrictions. For non-Dutch counterparties, request a certificate of authority or board resolution.

- **Q:** What if you discover after signing that you contracted with the wrong entity?
  **A:** You may be able to seek annulment for error if the identity of the counterparty was essential and the other side knew or should have known this. In practice, a novation (replacing the contract with the correct entity) is the cleaner fix.

- **Q:** Can a parent company be held liable for a subsidiary's contract?
  **A:** Generally not, because companies in a group are separate legal entities. Exceptions exist where the parent has given a guarantee, has itself acted as a party, or where a court pierces the corporate veil for fraud or abuse.

- **Q:** What is counterparty risk in a financial or SaaS context?
  **A:** Counterparty risk is the risk that the other party cannot meet its obligations, for example due to insolvency. In SaaS contracts this includes the risk that the vendor goes out of business, taking your data or service access with it.

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