Contract Administration
Change of Control
Also: CoC, Change-of-Control Clause, Change of Ownership, Ownership Change · CoC, Change-of-Control Clause, Change of Ownership, Ownership Change, Control Change
A change-of-control clause addresses what happens to a contract when one of the parties undergoes a significant ownership change — such as a merger, acquisition, or sale of a controlling interest.
Depending on the clause, a change of control may require the other party's consent, trigger a right to terminate, or simply require notice.
Lawyer Explanation
A change-of-control provision defines what constitutes a change of control and specifies the contractual consequences when such an event occurs. Common consequences include a termination right, a consent requirement, or a deemed assignment.
The definition of "change of control" varies significantly. Some clauses focus on ownership of voting securities; others cover changes in board composition, sales of substantially all assets, or any transaction that results in a new party controlling the business.
Change-of-control clauses are closely related to anti-assignment provisions and should be read together with them.
What It Actually Does
A change-of-control clause answers: "If the company I contracted with gets acquired or changes ownership, do I have any rights under this agreement?" For example, a customer that entered a SaaS agreement with a small vendor may be concerned about what happens if that vendor is acquired by a competitor. A change-of-control clause may give the customer the right to terminate the agreement if the acquisition occurs.
Why It Matters
Change-of-control clauses can significantly affect the value and transferability of contracts in M&A transactions.
A buyer acquiring a company must identify which contracts contain change-of-control provisions and assess whether the acquisition will trigger consent requirements or termination rights. Failing to obtain required consents can result in the loss of key contracts.
For the party holding the change-of-control right, the clause provides protection against being required to continue a relationship with an unknown or undesirable counterparty after an ownership change.
Example
A company enters a five-year master services agreement with a technology vendor. The agreement contains a change-of-control clause giving the customer the right to terminate if the vendor is acquired by a competitor.
The vendor is subsequently acquired by one of the customer's direct competitors. The customer invokes the change-of-control clause and terminates the agreement.
Common Language You May See
"In the event of a Change of Control of either party, the other party shall have the right to terminate this Agreement upon [30/60/90] days' written notice."
"'Change of Control' means any transaction or series of transactions resulting in any person or entity acquiring beneficial ownership of more than fifty percent (50%) of the outstanding voting securities of a party."
What Stewart Law Looks For
- How is "change of control" defined in the contract?
- Does the clause cover mergers, asset sales, and share acquisitions?
- What are the consequences of a change of control — termination right, consent requirement, or notice only?
- Which party holds the change-of-control right?
- What notice is required to exercise the right?
- Does the clause interact with anti-assignment provisions?
- Are there any exceptions for internal restructurings or affiliate transactions?
- Does the clause address the effect of a change of control on payment obligations or prepaid fees?
- Is there a cure or consent period before termination rights arise?
- Does the clause survive the change-of-control event?
Common Red Flags
A change-of-control provision deserves closer attention when it:
- uses a broad definition that could be triggered by internal restructurings or minority investments
- gives one party an absolute termination right without any consent or cure mechanism
- fails to address the effect on prepaid fees or outstanding obligations
- conflicts with anti-assignment provisions in a way that creates uncertainty
- is silent on the notice period required to exercise the termination right
- applies to only one party, creating an asymmetric risk allocation
Perspectives
Customer / Buyer
The party holding the change-of-control right will generally want a broad definition of triggering events, a meaningful termination right, and adequate notice to evaluate the new counterparty before deciding whether to continue the agreement.
Vendor / Seller
The party subject to a change-of-control clause will generally want a narrow definition of triggering events, exceptions for internal restructurings and affiliate transactions, and a reasonable cure or consent period before any termination right arises.
Florida & Federal Considerations
Florida
Florida courts generally enforce change-of-control provisions according to their terms. The specific consequences of a change of control depend on the contract language and the facts of the transaction.
Related Terms
Contracts Where You'll Commonly See It
Frequently Asked Questions
What counts as a "change of control"?
The definition varies by contract. Common definitions include a merger, acquisition of a majority of voting shares, sale of substantially all assets, or a change in the composition of the board of directors. The specific definition in the contract controls.
Does a change of control automatically terminate the contract?
Not necessarily. Some change-of-control clauses give the non-changing party the right to terminate; others require consent; others simply require notice. The effect depends on the contract language.
Can a party waive its change-of-control rights?
In many cases, yes. The non-changing party may choose to consent to the change of control and continue the agreement. Whether a waiver is valid and what form it must take depends on the contract.
How does a change-of-control clause interact with an anti-assignment clause?
Many anti-assignment clauses treat a change of control as a deemed assignment, triggering consent requirements. The two provisions should be read together to understand the full scope of restrictions.
Are change-of-control clauses common in SaaS agreements?
Yes. SaaS and technology agreements frequently include change-of-control provisions, particularly where the customer is concerned about its data being transferred to a competitor or an unknown third party.
Have a Contract Using These Provisions?
Contract language operates as part of the agreement as a whole.
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