An engagement letter defines the relationship. Its most important function is not the fee arrangement but the statement of scope, because expectations that were never written down are what later disagreements are made of.
Identify the client precisely. In a company matter, the entity — and say expressly that the firm does not represent its owners, officers or affiliates individually. In a joint representation, name everyone and address what happens if their interests diverge.
Define the scope, and the exclusions. What the firm is engaged to do, and what it is not: no tax advice, no advice on other jurisdictions, no responsibility for monitoring deadlines outside the matter. Exclusions are as important as inclusions.
Fees and billing. Rates, increases, what is billed as an expense, retainers and how they are applied, and the terms on which the firm may withdraw for non-payment.
Conflicts. Any waiver being sought should be specific and informed, and the letter should address future conflicts if a prospective waiver is intended.
Communications and file. Who receives advice, whether email is acceptable, and what happens to the file at the end.
Closing the matter. A closure letter is the corresponding discipline. An engagement that is never formally ended can leave the firm owing continuing duties and can affect when a limitations period begins on any later claim.