A Change of Control clause usually comes into play when there’s a major change in ownership or control of a company, such as a merger or sale. This clause can impact whether the contract continues as is, or if one party can change or even cancel the agreement.
Here’s why it’s important to keep an eye on these clauses:
- Protecting your business: If the company you have a contract with gets taken over by someone else (like a competitor), you might want to walk away from the deal. A Change of Control clause can give you that option.
- Protecting your value: If one of your key client contracts has a Change of Control clause in place, this could impact the value of your business when it comes to sale. We’ve seen this happen recently where the buyer asked for an indemnity to guard against the risk of the key client leaving once the buyer takes control.
- Money matters: A Change of Control clause can allow you to renegotiate terms, like payment amounts or deadlines, if ownership changes. This can either help you save money or prevent unexpected costs.
- Legal issues: In some industries, a new owner might change how the business is run, which could create legal or regulatory challenges. A good Change of Control clause should let you review the contract in light of these changes.
Tips to handle change of control clauses
- Be specific: Make sure the contract clearly defines what counts as a “change of control.” Is it when most of the shares are sold, or does it include changes in management? This can prevent confusion later.
- Early exit options: If you’re signing a long-term contract, think about including an option to cancel or renegotiate the contract if there’s a change in ownership that doesn’t work for you.
- Think about your buyer: If you want to sell your business one day, carefully consider whether you accept or negotiate the Change of Control clause in your key client’s contract.
- Know the risks: If the other party seems likely to change owners (through a sale or takeover), having a strong Change of Control clause is even more important.
- Get notified: Make sure the contract says you’ll be informed if there’s a change in control, so you have time to make decisions.
- Keep reviewing: Over time, check that your Change of Control clauses still fit your business needs, especially if your industry or situation changes.
In short, Change of Control clauses are key to making sure you’re protected when big changes happen to the companies you work with, but they can also cut the other way if you’re thinking about selling.
If you’d like help reviewing any contracts or Change of Control clauses, please don’t hesitate to get in touch.
Ryan has helped a vast number of businesses protect and control their intellectual property as well as drafting and advising on consumer and commercial contracts.
