Change-of-control clause review checklist

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A change-of-control clause sits quietly near the assignment and termination provisions of a contract until a share sale, merger or funding round arrives. At that point it can decide whether a key commercial relationship survives the transaction. English-language contracts call it a change-of-control, or CoC, clause; Japanese contracts describe the same idea as a change in controlling shareholders or parent company.

What counts as a change of control

The usual triggers are a transfer of a majority of voting rights, a change of parent company, a merger or acquisition by a competitor, but some clauses reach further, capturing a shift in a minority stake, so the definition needs checking first. The broader it is, the more likely an ordinary fundraising round gets caught by a clause meant for a genuine change of control.

Notice, consent and the termination right

Whether a change of control requires only after-the-fact notice, advance notice, or prior written consent changes the practical burden considerably, and matters more where pre-closing confidentiality limits when the counterparty can even be told. An unconditional termination right on any change of control is heavy for the target; limiting it to acquisition by a competitor is easier to live with, provided "competitor" is defined tightly enough to avoid later argument.

Carve-outs that matter for fundraising

Group reorganisations, market trades in listed shares, venture or institutional investment, an IPO, or a move to a holding-company structure are commonly carved out, and a startup should make sure ordinary funding rounds are structured not to trip the clause. On the M&A side, sellers should identify which key contracts carry a change-of-control clause early and decide whether consent becomes a closing condition, while buyers should treat continuity of the contracts underpinning the target's revenue as a real diligence item.