What does change in control provision mean?

Also known as change of control. A provision in an agreement giving a party certain rights (such as consent, payment or termination) in connection with a change in ownership or management of the other party to the agreement.

Why include a change of control clause?

It is common for creditor agreements to include a change of control clause to protect the lender in case the company comes under new ownership. Such clauses may stipulate that the lender can demand to be repaid in full upon triggering of the clause by a change in company ownership.

What triggers a change of control?

For example, a change of control may be triggered by a sale of more than 50% of a party’s stock, a sale of substantially all the assets of a party or a change in most of the board members of a party. For a standard change of control clause, see Standard Clause, Loan Agreement: Change of Control Event of Default.

What does change in control mean in business?

A change in control often occurs in a corporate context. The precise definition varies by jurisdiction and entity. Typically, it refers to a transfer of ownership in which a new person or entity obtains a fifty percent or greater ownership interest.

What is a change of control fee?

Change of Control Costs Incurred Change of control costs relate to costs incurred by the company in connection with a change in management that resulted from the sale of the company’s shares by its major shareholder (See Note 28).

Does a change of control constitute an assignment?

The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision.

Is a change of control a transfer?

A change of control typically includes the transfer of a certain percentage of the target company’s issued and outstanding shares from the target company to the acquirer. Usually, the required percentage exceeds 50%, but it may be lower or higher.

What is an indirect change of control?

Indirect – If TargetCo has a subsidiary, any change in the controlling interest of TargetCo may trigger a change of control clause in a contract between that subsidiary and a third party. This is because the ownership of the entity which ultimately controls the subsidiary (i.e. TargetCo) has changed.

How do you transition ownership of a business?

There are four common paths for changing ownership of a business: employee stock ownership plan (ESOP), sale to a third party, initial public offering and transition to family members or an existing management team.