We exhibit the benefits of using formal methods for constructing and documenting component software. Formal specifications provide concise and complete descriptions of black-box components and, herewith, pave the way for full encapsulation. Specifications using abstract statements scale up better than prepostconditions and allow for ‘relative’ specifications because they may refer to other components. Nondeterminism in specifications permits enhancements and alternate implementations. A formally verifiable refinement relationship between specification and implementation of a component ensures compliance with the published specification. Unambiguous and complete contracts are the foundation of any component market.