Change of control provision: when the other party is taken over

Sample clause

Written for a reseller agreement between Tidewell Systems, a fictional software vendor, and a regional reseller that distributes its products.

Change of Control. (a) A Change of Control of a party occurs when any person, alone or with its associates, acquires: (i) more than 50% of the voting shares in that party or in any company that controls it; or (ii) the power to appoint or remove a majority of that party's board. (b) A party must notify the other in writing within 10 business days after a Change of Control. (c) Within 60 days after receiving that notice, the other party may terminate this agreement by giving 30 days' written notice. (d) A Change of Control does not include a transfer within the same corporate group, or a change in the holders of shares in a company listed on a recognised stock exchange unless a person acquires control as defined in paragraph (a).

Sample wording, not legal advice.

Variants

What to negotiate

• The threshold

  More than 50% of voting shares is the common test, but control can be acquired with less, through board appointment rights or a shareholders' agreement. Definitions often add board control, as the sample does. Australia's Corporations Act has its own concept of control, including practical influence over financial and operating policies, which some contracts adopt.

• Listed company carve outs

  Shares in listed companies change hands every day, so a clause triggered by any transfer would be unworkable. Listed parties usually exclude ordinary trading and limit the trigger to someone actually gaining control, which in Australia often coincides with the takeover thresholds in the Corporations Act.

• Intra group transfers

  A group restructure, moving a subsidiary under a different parent within the same group, changes the immediate holder but not the ultimate owner. Parties usually exclude intra group transfers, sometimes only while the new holder stays in the group, so that an internal reorganisation does not hand the other party an exit.

The risk of leaving it out

Without a change of control provision, a contract continues automatically when the other party is sold, even to a competitor of yours, because no assignment occurs. A business can find its key supplier, distributor or software provider owned by a rival with no right to leave. For sellers, these clauses in their customer contracts are a key due diligence issue.

Defining control

Three common definitions. Voting control: holding more than 50% of voting rights, directly or through intermediate companies. Board control: the power to appoint or remove a majority of directors, which can exist with a minority shareholding. Economic or practical control: the capacity to determine financial and operating policies, as in section 50AA of the Corporations Act 2001, which looks at practical influence rather than formal rights. The sample combines voting and board control, which covers most acquisitions without the uncertainty of a practical influence test. Law checked on 21 October 2026. This page explains how the clause works and is not legal advice.

Change of control and assignment

An assignment transfers the contract from one party to another. A change of control leaves the contract with the same party, while ownership of that party changes. An assignment clause therefore does not catch a share sale, which is why separate change of control wording is needed. Some contracts deem a change of control to be an assignment, which brings the assignment restrictions into play; that is a drafting choice, not the default.

A due diligence checklist

For a buyer of a company, check: which contracts contain change of control provisions; what each one does, whether consent, termination or notice; the definition of control and whether the proposed deal triggers it; deadlines for notice; whether the counterparty is likely to use the right; and the revenue at risk. Material contracts with consent requirements may need consents as conditions precedent to completion, and the purchase price may reflect the risk of losing contracts after the sale.

Takeovers and public companies

In Australia, acquisitions of more than 20% of a listed company are regulated by Chapter 6 of the Corporations Act, and ASIC and the Takeovers Panel oversee them. In the UK, the Takeover Code governs offers for public companies. Change of control clauses in a target's material contracts can affect a takeover and are usually disclosed in the bidder's and target's documents.

Documents that carry this clause

Shareholders agreement template for a company after a seed roundA shareholders agreement template sets out who owns what, who sits on the board, which decisions need shareholder consent, how shares are sold, and how a deadlock ends. This one is filled in for a Queensland veterinary diagnostics company that has just taken $1.5 million from one seed fund, leaving the two founders with 80 per cent between them. Its central number is an 85 per cent consent threshold for eight reserved matters, and the page below shows what that number does and does not protect.Software licence agreement template with seats, term and supportA software licence agreement has to answer three questions before anything else: what a seat is, what happens when the software is down, and who gets the data at the end. This one licenses a hosted practice management suite to a medical practice for 25 named users at $9,600 a year, with a support table, uptime credits and a 30 day export.Distribution agreement template with territory and targetsAn exclusive distribution agreement is a trade: a territory in exchange for volume. This one appoints a New Zealand distributor for a skincare range at 48 per cent of recommended retail, with purchase targets rising from NZD 240,000 to NZD 420,000 across three years, and exclusivity that converts to non exclusive if a target is missed by more than 15 per cent.

Questions people ask