Simply put, a change of control provision is a clause in a contract that gives the counterparty a right or claim (and sometimes a prison-free card) with respect to the contract with TargetCo in the event of a change in TargetCo`s ownership. This may include, for example, that it is always possible that the issue of change of control does not apply. Therefore, instead of scattering in an attempt to avoid this situation, it may be possible to negotiate certain requirements if this is indeed the case. For example, your company may try to initiate some sort of authorization procedure in which the other party can obtain permission to modify and maintain the contract or provide some form of payment as compensation for the change. Of course, maintaining the right to terminate the treaty offers the greatest protection, but the real need depends on the nature of the agreement in question. The first step is to identify the types of changes that your company may consider problematic for a contract in its current form. For some businesses, changing ownership may not be a big thing. However, in some cases, the contract may be very specific or address a single product or service, and it may therefore be difficult to replicate the terms by a new entity. Of course, some companies simply don`t want to deal with the efforts to meet new leaders when one of their contractual partners is won or take the risk that the new management doesn`t fit well. Where an enterprise has entered into a contract with another enterprise, it must ultimately determine the circumstances in which it does not wish to continue the contract as originally negotiated and designed.
During the due diligence phase of the transaction, buyers must closely comply with all provisions relating to changes in control contained in contracts between TargetCo and its large customers and suppliers. If contracts with TargetCo`s wholesale customers or suppliers include change of control provisions, it would be desirable to obtain the consent of the relevant counterparty to change control or to request the waiver of the counterparty`s right to terminate the contract prior to the purchase of TargetCo. Many contracts prohibit assignment, which prevents one or both parties from assigning their rights and obligations under the treaty to a new party. This may seem to cover a change in control, but it`s not like an assignment is a particular action. An amending clause must be specifically committed to the way in which the treaty is to be treated, if or when the other party undergoes some type of change in its structure and/or ownership. . . . .