# Change of control clause

Source: https://contracko.com/glossary/change-of-control-clause

# Change of control clause

A provision giving rights if ownership or control of a contracting party changes hands.

## Definition

A change of control clause entitles a party to act (commonly to terminate, renegotiate, or require consent) when the other party undergoes a defined shift in ownership or control, such as a takeover or merger. It protects against being bound to a counterparty now controlled by a competitor or a less creditworthy owner. The trigger and consequences must be precisely defined, as such clauses can significantly affect M&A transactions.

## Example

> When the supplier is acquired by a competitor, the customer invokes the change of control clause to terminate the framework agreement.

## Why this is a business risk

A change of control clause can kill an M&A deal if it is not identified and addressed in due diligence: if enough key contracts contain exit rights triggered by acquisition, the deal may unravel at closing. Equally, a business without these clauses in its own supplier contracts may find itself locked into agreements with new counterparties whose priorities directly conflict with its own after an acquisition.

## How to manage it

- Identify all change-of-control clauses in your supplier and customer contracts as part of any M&A due diligence.
- Define the trigger threshold precisely (e.g. acquisition of more than 50% of shares) to avoid disputes about application.
- Negotiate a notice and cure window so the affected party has time to seek consent rather than facing immediate termination.
- Keep the contract repository up to date so that, in a deal process, every relevant clause can be located quickly.

### How Contracko helps

Contracko's AI analysis flags change-of-control clauses during contract review, and the searchable repository allows legal teams to locate all affected contracts in a M&A due diligence process without manual file-by-file review.

## Relevant for

[Financial Services](https://contracko.com/industries/financial-services)[Software & SaaS](https://contracko.com/industries/software-saas)[Manufacturing](https://contracko.com/industries/manufacturing)

## Related clauses

- [Change of Control Clause](https://contracko.com/clause-library/change-of-control)
- [Termination for Cause Clause](https://contracko.com/clause-library/termination-for-cause)
- [Assignment Clause](https://contracko.com/clause-library/assignment)

## Related terms

- [Material adverse change (MAC)](https://contracko.com/glossary/material-adverse-change)
- [Assignment](https://contracko.com/glossary/assignment)
- [Termination](https://contracko.com/glossary/termination)
- [Counterparty](https://contracko.com/glossary/counterparty)

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## Frequently asked questions

Common questions about this term.

- **Q:** What typically counts as a change of control?
  **A:** Usually the acquisition of a majority of shares or voting rights, a merger, or any transfer that shifts decisive influence over the party. The exact threshold is defined in the clause.

- **Q:** Why do customers want a change of control clause?
  **A:** To avoid being bound to a new owner they did not choose (for instance a competitor), by securing a right to consent to or exit the contract.

- **Q:** Does a change of control clause automatically terminate the contract?
  **A:** Not necessarily. Most clauses give the protected party a right to terminate or withhold consent, but that right must be actively exercised within the notice period. Some clauses do provide for automatic termination, but this is less common.

- **Q:** Can a change of control clause block a legitimate business acquisition?
  **A:** Yes, in practice. If a target company has many contracts containing change of control rights, the acquirer may need to renegotiate or obtain consent from each counterparty before closing, which can delay or even prevent the deal.

- **Q:** Should a seller disclose change of control clauses to a buyer in M&A?
  **A:** Yes. Material contracts containing change of control provisions are a standard disclosure item in a data room. Failure to disclose them can give the buyer a warranty claim if a key contract is lost post-closing.

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