Change of Control Clause
Change of Control clauses create a right to terminate a contract - usually with a supplier - after the management and/or shareholders change, during the term of the contract.
It's a type of break clause: the right to terminate the contract arises those in control of the company change.
The change of control might might be focused on the directors alone, ownership of shares in the company, or both.
Legal Position with Contracts
When contracts are made, it can be important to a customer that those in control of the supplier are part of the delivery of the solution. It’s a testament that people do business with people, not companies.
Customers can’t directly control the internal affairs of the supplier (legally speaking, anyway).
But they can reserve a right to terminate the contract if those in control of a company change during the term.
Commercial Considerations
Concerns might arises that performance of the contract might change after the change of contract. Leading to a different way or level of performance of the contract.
In addition, a customer or a supplier may which to have an option to end the contract if the other company is sold during the term of the contract.
Change of Control Clause: Example
To do so, the contract could include a Change of Control clause.
[…]Change of Control: means a change in the direct or indirect ownership of more than 50% of the voting power on the board or members of the named entity.
[…]The Customer shall have the right, without prejudice to its other rights or remedies, to terminate this Agreement by 3 months’ written notice to the Supplier, if there is a Change of Control of the Supplier.
Notice of termination under this clause must be given within three calendar months of notice in writing that such events have or will take place.
Related:
- Boilerplate Clauses
- Planning for Termination:
- Cumulative Rights Clause
- Further Assurance Clause