What is a change of control clause?

A share sale is often described as leaving the company’s contracts untouched, because the corporate entity signing them does not change. A change of control clause is the exception that breaks that assumption — it lets a counterparty respond to who now owns or controls the company, even though no assignment technically happened.

What triggers it

These clauses are usually drafted around a defined threshold — a transfer of a majority of voting shares, or a change in who can direct the company’s management, is the common trigger. The exact mechanics vary by contract, and a deal structured to fall just outside the definition can sometimes avoid triggering it entirely, which is why the drafting matters more than the general concept.

What the counterparty can typically do once it is triggered

• Require consent before the change takes effect, similar to an assignment consent requirement
• Terminate the contract on notice, sometimes without needing to show any actual problem with the new ownership
• Renegotiate pricing, terms or security requirements as a condition of continuing
• Accelerate obligations, such as calling a loan or requiring a new guarantee

Where these clauses show up most

Loan agreements, leases, supply contracts with larger counterparties, licensing agreements and franchise agreements commonly include change of control language, because the lender, landlord or licensor has an ongoing interest in who is actually running the business. A buyer doing due diligence on a share purchase needs to read for this clause specifically — its absence from an assignment review is a common gap, because nothing is technically being assigned.

How it gets managed in a deal

Once a change of control clause is identified, the parties typically deal with it the same way they would an assignment consent requirement — flagging it early, approaching the counterparty before closing, and building the timeline for consent or renegotiation into the closing conditions. Leaving it until after closing risks the counterparty exercising a termination right the buyer did not see coming.