What third party consents are required to sell a company?

Takeaway: Depending on the structure of the transaction, completing acquisitions can require obtaining third-party consents, including contractual consent rights, stockholder approval, lender consent, regulatory approval, key employee consent, and landlord consent.

When selling a startup, the process involves not only the buyer and the seller but often third parties as well. Third parties such as creditors, stockholders, or landlords may have rights that are impacted by the sale, requiring their consent before the transaction can proceed. This post will explain the key third party consents that startups need to be aware of when planning to sell their company.

Contractual Consent Rights

In many business contracts, there is a clause known as a "change of control" provision. This provision requires the company to obtain the consent of the other party before it can be sold. This is particularly common in customer contracts, vendor agreements, and commercial leases. Not all transaction types trigger change of control provisions - reverse triangular mergers, for example, often do not.

Stockholder Consent

In most jurisdictions and corporate structures, the sale of a company requires the consent of its stockholders. Depending on the jurisdiction and the company's charter and bylaws, this could require a variety of votes including a simple majority, a supermajority, and/or a majority of certain classes of stock.

Lender Consent

If the company has taken on debt, the lender may also have a say in the sale of the company. Loan agreements often include covenants that require the lender's consent before the borrower can engage in certain actions, including selling the company.

Regulatory Approval

Depending on the industry and jurisdiction, regulatory authorities may need to approve the sale. This is particularly common in heavily regulated industries, such as healthcare, financial services, and telecommunications but less common with technology startups.

Consent of Key Employees

While not always a legal requirement, obtaining the consent of key employees can be crucial. These individuals often have deep knowledge of the company's operations and relationships with customers and suppliers and the buyer will likely want them to sign new employment agreements. Their departure could significantly impact the value of the company to the buyer.

Landlord Consent

If the company leases its premises, the landlord may need to consent to the transfer of the lease. This is especially relevant if the lease is a significant asset, such as in a retail business.

Conclusion

Selling a company often requires the consent of more parties than just the buyer and the seller. Early identification and management of these third party consents can help prevent delays and complications in the sale process.