AI for Legal Documents: Contract Review, Compliance, and Analysis

⚠️ IMPORTANT DISCLAIMER

AI is not a substitute for legal counsel. These prompts are tools for initial analysis, drafting assistance, and research only. Always have a qualified attorney review any legal work before relying on it. Laws vary by jurisdiction. Nothing here constitutes legal advice.

Use these for: Initial research, draft preparation, spotting issues to discuss with counsel. Don't use these for: Final legal decisions, binding advice, or relying on AI interpretations as law.

A startup founder reached out to me last year, frustrated.

"I reviewed three vendor contracts last month," she said. "Paid a lawyer $3,000 to check each one. Most of the issues were obvious—bad payment terms, unreasonable IP clauses, ridiculous non-competes."

"Couldn't you have caught those yourself?" I asked.

"Probably. But what if I missed something? What if I signed something terrible without realizing?"

That fear is real. And it's expensive.

Here's what changed for her: AI-assisted legal review. Not AI making legal decisions, but AI surfacing issues to discuss with a lawyer.

She started using strategic prompts to:

Flag high-risk clauses before lawyer review
Summarize complex language into plain English
Compare terms across multiple agreements
Identify missing protections

Still got lawyer review. But lawyers only spent 30 minutes per contract instead of 2 hours, cutting costs by 75%.

The key? Knowing how to prompt AI about legal documents.

The Reality of AI in Legal Work

AI is incredible at some things and useless at others.

What AI is good at:

Spotting standard language and clauses
Identifying unusual terms (red flags)
Summarizing complex language
Comparing similar contracts
Initial legal research
Drafting templates and letter structure

What AI is terrible at:

Understanding jurisdiction-specific nuances
Predicting how courts will interpret language
Making binding legal decisions
Understanding your actual business situation
Knowing what's "normal" in your specific industry

The sweet spot: AI for initial screening and preparation. Humans for decisions.

Contract Review Prompts

Template 1: Initial Red Flag Screening

You are assisting with contract review (not providing legal advice).

Contract type: [NDA / Employment / Service / Lease / Vendor / Other]
Our role: [Are we the service provider, client, tenant, etc.?]
Jurisdiction: [State/Country]
Our concerns: [Any specific issues we're worried about?]

Analyze this contract:
[PASTE CONTRACT TEXT]

Identify potential red flags:

CRITICAL ISSUES (Could hurt us significantly):
- [Issue 1]: [What it says] → [Why this is risky] → [Action]
- [Issue 2]: [What it says] → [Why this is risky] → [Action]

HIGH PRIORITY (Should discuss with counsel):
- [Issue 1]: [Details]
- [Issue 2]: [Details]

MEDIUM PRIORITY (Review with lawyer):
- [Issue 1]: [Details]

MISSING PROTECTIONS (Standard protections not included):
- [Protection 1]: [What's missing, why it matters]
- [Protection 2]: [Details]

For each issue, answer:
- What does it say exactly (quote the language)?
- How does this affect us?
- Is this negotiable or standard?
- What should we ask the lawyer?

Remember: This is initial analysis only. Everything needs lawyer review.

Use this as your first pass. It surfaces 70% of negotiable issues without lawyer time.

Template 2: Employment Contract Analysis

Review this employment agreement:
[PASTE CONTRACT]

Employee role: [Position]
Salary/terms: [Compensation details]
Location/jurisdiction: [Where they'll work]

Analyze:

COMPENSATION & BENEFITS:
- Base salary: [Amount]
- At-will employment or fixed term: [Which]
- Benefits coverage: [What's included]
- Bonus/commission structure: [How paid]
- Issue: [Any red flags here]

RESTRICTIVE COVENANTS:
Non-compete: [Does it exist? Scope?]
- Geographic range: [Area restricted]
- Duration: [How long]
- Reasonable: Yes/No and why

Non-solicitation: [Employees / Customers / Both]
- Duration: [How long]

Confidentiality: [What counts as confidential]
- Duration: [Indefinite or limited]

INTELLECTUAL PROPERTY:
- Who owns work created: [Employee or Company]
- Scope: [Just work-related or everything?]
- Existing IP: [Does employee keep past work?]

RED FLAGS:
- [Issue 1]: [Details]
- [Issue 2]: [Details]

RECOMMENDATIONS FOR DISCUSSION WITH COUNSEL:
- [Point 1]
- [Point 2]

This should be reviewed by employment counsel before signing.

Don't sign employment contracts without review. This prompt helps lawyers review faster.

Template 3: Service Agreement / Vendor Contract

Analyze this [Service / Vendor] contract between us and [Company Name]:

Service/deliverable: [What are they providing?]
Term: [Duration, renewal terms]
Payment: [Amount, terms, penalties]
Jurisdiction: [Where disputes go]

Key sections to review:

SCOPE OF WORK:
What they're delivering: [Description]
Clarity: Is this specific or vague?
Issue: [Any ambiguity that could become a problem?]

PAYMENT TERMS:
Fee structure: [Per unit, monthly, project, other]
Payment schedule: [When you pay]
Late payment penalties: [Exist? Are they reasonable?]
Refunds: [Are there refunds for poor service?]

LIABILITY & INDEMNITY:
Who's responsible if something goes wrong: [Service provider or us?]
Liability caps: [Is there a limit?]
Insurance requirements: [Do they have coverage?]

TERMINATION:
Can we end this: [Easily or locked in?]
Notice required: [How much notice?]
Penalties for early termination: [Costs?]

INTELLECTUAL PROPERTY:
Do they keep templates/processes: [Yes or no?]
Do we own the final work: [Yes or no?]
Can we reuse their work: [Restrictions?]

RED FLAGS:
- Unlimited liability for us: [Does contract have this?]
- Vague deliverables: [Are expectations unclear?]
- Unfavorable IP terms: [Do we lose rights?]
- Onerous termination: [Can't leave without penalty?]
- Insurance gaps: [Are they covered if problems?]

NEGOTIATION POINTS:
For your lawyer to discuss:
- [Point 1]: [Current term vs. what you want]
- [Point 2]: [Details]

This is the contract structure. Lawyer review required before signing.

Use this for vendor and service agreements to spot negotiable terms.

Compliance and Legal Research Prompts

Template 4: Terms of Service Compliance Check

We're reviewing our Terms of Service for compliance with:
- [GDPR / CCPA / HIPAA / Other regulation]
- Industry standard: [Your industry]
- Location: [Where customers are based]

Our current ToS: [PASTE]

Check for compliance:

CRITICAL REQUIREMENTS for [Regulation]:
1. [Requirement 1]: Do we address this? [Yes/No] Quote: [relevant section or 'missing']
2. [Requirement 2]: [Details]
3. [Requirement 3]: [Details]

GAPS IN COVERAGE:
- [Missing element 1]: [Why it matters]
- [Missing element 2]: [Why it matters]

LANGUAGE ISSUES:
- Is this legally clear: [Assessment]
- Ambiguous language: [Examples]
- Too broad: [Areas that might not hold up]

INDUSTRY STANDARD PRACTICES:
Compared to [competitors/industry standard]:
- We include: [What we have]
- We're missing: [What we lack]
- We're different: [Where we deviate - good or bad?]

RECOMMENDATIONS:
- [Recommendation 1]: [Action]
- [Recommendation 2]: [Action]

NOTE: Have legal counsel review any changes. This is analysis, not advice.

Use before updating your ToS to make sure you're not missing regulatory requirements.

Template 5: Legal Research Summary

Research this legal question: [Your question]

Background: [Context about your situation]
Jurisdiction(s): [State/country applicable]

Find and summarize:

THE QUESTION:
[Restated clearly for clarity]

GENERAL LEGAL PRINCIPLE:
[How most jurisdictions handle this]
- Sources: [General understanding]

JURISDICTION-SPECIFIC RULES:
[For your specific state/country]:
- Rule: [What the law says]
- Source: [Case name / statute if known]
- When it applies: [Specific circumstances]
- Exceptions: [When this rule doesn't apply]

PRACTICAL IMPLICATIONS:
For someone in our situation: [What this means for us]
- Do: [What we should do]
- Don't: [What we should avoid]

AREAS OF UNCERTAINTY:
[Questions where law isn't clear or varies]

WHAT A LAWYER SHOULD INVESTIGATE:
- [Research point 1]
- [Research point 2]

This is initial research. A lawyer should review jurisdiction-specific implications.

Use for preliminary research before talking to your lawyer. Saves them research time.

Due Diligence and M&A Prompts

Template 6: Investment Document Red Flags

We're reviewing documents in the data room for a potential [acquisition / investment]:

What we're doing: [Type of deal]
The target company: [Company name]
Key documents: [What we're looking at]

Red flags to watch for in:

FINANCIAL DOCUMENTS:
- Revenue trends: [Any drops or inconsistencies?]
- Expense spikes: [Unusual costs?]
- Debt obligations: [Hidden liabilities?]
- Revenue quality: [Is revenue recurring or one-time?]

CONTRACTS:
- Customer contracts: [Change of control clauses? Key customer concentration?]
- Vendor contracts: [Price increases on acquisition?]
- Employment: [Golden parachutes or retention issues?]
- Debt covenants: [Debt changes with ownership?]

LEGAL ISSUES:
- Pending litigation: [Lawsuits pending?]
- Regulatory issues: [Any compliance issues?]
- Intellectual property: [Is IP clearly owned? Patents clear?]
- Tax issues: [Any tax disputes?]

PEOPLE:
- Key employee contracts: [Can they leave?]
- Non-competes: [Restricted from working elsewhere?]
- Incentives: [What motivates staying?]

RED FLAGS SUMMARY:
- [Issue 1]: [Details and why concerning]
- [Issue 2]: [Details]

QUESTIONS FOR DUE DILIGENCE COUNSEL:
- [Question 1]
- [Question 2]

This is preliminary analysis. Full due diligence review by legal counsel is essential.

Use during M&A process to identify issues worth attorney time.

Common Legal Document Prompts

Template 7: Plain English Translation

Translate this legal language into plain English:

[PASTE LEGAL TEXT]

Translate into simple language:

WHAT IT SAYS:
[Simple explanation]

WHAT THAT MEANS FOR US:
[Business implications]

KEY TERMS DEFINED:
- [Legal term 1]: [Simple definition]
- [Legal term 2]: [Simple definition]

WHAT WE SHOULD UNDERSTAND:
[Key points]

QUESTIONS THIS RAISES:
- [Question 1]
- [Question 2]

This is for understanding, not legal interpretation. Have counsel explain complex sections.

Use when contract language is confusing. Gets you up to speed before lawyer discussion.

Template 8: Comparison Analysis

Compare these contracts:

AGREEMENT 1: [Name, date]
AGREEMENT 2: [Name, date]

Compare on key dimensions:

TERM & TERMINATION:
Agreement 1: [Duration and how to end]
Agreement 2: [Duration and how to end]
Difference: [Which is better for us?]

PAYMENT:
Agreement 1: [Pricing]
Agreement 2: [Pricing]
Difference: [Comparison]

LIABILITY:
Agreement 1: [Who's liable]
Agreement 2: [Who's liable]
Difference: [Which is more favorable?]

IP OWNERSHIP:
Agreement 1: [Who owns what]
Agreement 2: [Who owns what]
Difference: [Which protects us better?]

FAVORABLE TERMS IN AGREEMENT 1:
- [Term 1]
- [Term 2]

FAVORABLE TERMS IN AGREEMENT 2:
- [Term 1]
- [Term 2]

WHICH IS BETTER FOR US:
[Assessment]

TERMS TO NEGOTIATE INTO OUR CONTRACT:
- [Term 1]: [From which agreement]
- [Term 2]: [From which agreement]

Use this to negotiate. Have lawyer review before submitting redlines.

Use when comparing similar deals to negotiate better terms.

Important Limitations and Ethical Considerations

What to Never Rely On AI For

❌ Don't:

Use AI interpretation as binding legal advice
Make decisions without lawyer review
Assume AI understands your jurisdiction
Believe AI knows industry norms where you operate
Skip legal review to save money

✅ Do:

Use AI for initial screening
Have lawyers review everything
Ask AI to research, not decide
Get jurisdiction-specific review
Budget for good legal counsel

Privacy and Confidentiality

Don't paste sensitive client information
Don't share confidential contracts with public AI tools
Use only private/enterprise versions
Check your AI tool's privacy policy
Keep legal work in private channels

Real Time Savings

From attorneys I've talked to:

Before AI-assisted review:

Contract review: 2 hours per contract
Cost: $300-500 per contract

With strategic prompts:

AI screening: 20 minutes
Lawyer focuses on flagged issues: 30 minutes
Total: 50 minutes

Savings: 70% less lawyer time, faster turnaround, fewer missed issues (AI catches things humans scan over)

When AI Can't Help

Some legal work should go entirely to lawyers:

High-stakes litigation
Complex M&A deals
Regulatory compliance for new industries
Anything with significant financial or legal risk
Cases involving government agencies

These aren't places to save money. These are places to invest in expertise.

The Honest Truth

I've seen two extremes:

The overconfident: Relies entirely on AI for legal advice. Eventual disaster.

The paranoid: Won't let AI touch anything legal. Overpays for basic review.

The smart middle: AI handles mechanical work and initial analysis. Humans make decisions.

Your lawyer becomes more efficient, you save money, and you actually get better legal protection.

That's the win.

For additional research techniques, see our guide on AI prompts for research and analysis.

To implement these prompts into your workflow, check out our AI workflows for productivity guide.

For security considerations when handling sensitive documents, read our prompt injection and security guide.

And always remember: Have a qualified attorney review anything you rely on legally. These prompts are tools, not substitutes for counsel.