Definition
A change of control clause is a term in a contract that gives the other party rights if ownership or control of the business changes, such as ending the contract, renegotiating it or requiring consent before the sale. These clauses appear in customer and supplier contracts, leases, software and franchise agreements and loan documents. In a share sale (stock sale in the US), the company keeps its contracts, so these clauses are the main way a counterparty can react. In an asset sale, contracts usually have to be transferred, which often needs consent whatever the clause says.
In an asset sale you buy selected assets of a business; in a share sale (a stock sale in the US) you buy the company itself, with its full history. The choice shapes risk, tax and what needs consent.
Worked example
Pinecrest Logistics is a fictional US business with revenue of $10,000,000, of which $3,000,000 comes from one retail chain. That contract lets the customer terminate on 30 days' notice if control of Pinecrest changes.
The buyer makes written confirmation from the retail chain a condition of completion, and agrees an earn-out linked to that customer's revenue in the first year.
An earn-out is part of the purchase price paid only if the business meets agreed targets after the sale. It can bridge a gap between the seller's price and the buyer's view of the evidence.
Why buyers care
A business can lose its biggest customer, its premises or a critical software licence simply because you bought it. That risk rarely appears in a listing.
Review every material contract early for change of control and assignment wording, list the consents needed, and decide which must be in hand before completion. Approaching customers, landlords or suppliers usually needs the seller's agreement and careful timing, because news of a sale can unsettle them. Where consent cannot be secured in advance, consider protecting yourself through price, an earn-out or a holdback.
A holdback is part of the purchase price the buyer keeps back at completion and pays later if no valid claims arise. Unlike escrow, the money stays with the buyer.