(3) In the case of mergers, the change of control clause is important. When an entity merges with another entity, it does not matter whether the target entity survives the merger. There is a provision in license agreements (and many, many others) that often refers to the “Boilerplate” at the end of the document, and that is whether either party can assign their rights to the agreement to third parties. Caught somewhere between “salvatory clause” and “global agreement”, it is often simply said: “No party can assign its rights to this agreement without the agreement of the other party”. From the licensee`s point of view, the ability to assign, at least in the context of an acquisition by a third party, can be absolutely critical. It is precisely in the case of a startup or small businesses, unless it is one of the lucky few able to go directly on the stock exchange, that its “final scenario” assumes that it will be acquired at some point. (4) This clause is also mainly considered in the context of consolidations, reorganizations or other transactions in which more than half of the members of the board of directors change. In the event of a change in shareholders, who are allowed to elect more than half of the board of directors, or when events and standards are derived from certain security rules or tax rules. In this article, I would discuss what a boilerplate clause is; what is a change in the control clause; Why it is important and its benefits; the disadvantages of the absence of such a clause; example of modification of the control clause; Is the change of control an assignment?; what all contracts can have such a clause.
It is advisable that each commercial contract has a change of control clause in order to avoid future business breakdowns. Another reason for this clause is that it limits the power of the contracting party. Some examples in which such a clause can be used are employment contracts; M&A agreement; partnership contract; rental (commercial property); leasing licence agreement; event management; all other trade agreements may have this clause. Change of control means, in a contract, whether the existing party wishes to retire and a new party wishes to take the position of the existing party; then, in such a contract, the power of the existing parties would be transferred to the acquiring party. Let`s understand this by an example: Mr. A entered into a contract with Mr.B the landowner of property X. Land X used for commercial purposes, Mr. A agreed to create the company. Subsequently, Mr. A acceded to his business law.
C, the assignment is valid if there is no assignment clause; If there were an assignment clause, this transaction would become valid. Therefore, a prudent licensee will request the right to assign the contract as part of the acquisition of its assets and activities covered by the patent or licensed technology. . . .