Change of Control

A change of control occurs when a transaction results in a new party acquiring a controlling interest in a business — typically through a share purchase, asset purchase, or merger. Many commercial contracts, leases, licences, and employment agreements contain change-of-control clauses that are triggered by a sale.

Change-of-control provisions may require the other party's consent before the transaction closes, allow the counterparty to terminate the agreement, accelerate repayment of outstanding debt, or trigger compensation obligations to employees. Identifying all change-of-control provisions is a critical step in legal due diligence for any business acquisition.

Common examples include commercial leases requiring landlord consent before assignment, customer contracts with termination rights on ownership change, and software licences that are non-transferable. Failure to obtain required consents before closing can expose the buyer to breach of contract claims or loss of essential business relationships.

See also: Due Diligence, Purchase Agreement, Representations and Warranties.