Change of control clause
A change of control clause gives a party rights, such as consent or termination, when the other party is sold, merged, or has its ownership change hands.
What it means
A change of control clause deals with what happens when one party is acquired, merges, or has a majority of its ownership or voting power change hands. It might require the other side’s consent, give it a right to terminate, or trigger other consequences such as a fee. “Control” is usually defined, often as owning more than 50 percent of the voting shares.
The clause exists because an ordinary assignment clause may not cover a sale of the business. If a company is bought through a stock purchase, the contracting company stays the same, so nothing is technically assigned. A change of control clause closes that gap.
For example, a small agency that relies on one big client may plan to sell in a few years. If the client can terminate on any change of control, a buyer sees a key customer that could walk away, and may lower the price or insist on the client’s consent before closing. These clauses protect the party that cares who it deals with, but for a founder planning an exit they can be a hidden obstacle.
What to watch for
- Check how “control” is defined and whether it could catch minority investments, financing rounds, or internal reorganizations.
- See exactly what the clause triggers: a notice requirement, a consent right, a termination right, or a payment.
- Look for carve-outs for transfers to affiliates or for a public offering.
- Check whether the clause applies to both parties or only to you.
- Note any deadline for the other side to use its termination right after the change. Without one, the uncertainty can linger indefinitely.
Example clause
If Supplier undergoes a Change of Control, Supplier shall notify Customer in writing within ten (10) days, and Customer may terminate this Agreement on thirty (30) days’ written notice given within ninety (90) days after receiving Supplier’s notice. “Change of Control” means any transaction or series of transactions by which a person or group acquires more than fifty percent (50%) of the voting power of Supplier.
If the supplier is bought or majority-sold, the customer gets a 90-day window to decide whether to end the contract.