What third party consents are required to sell a company?
Takeaway: Selling your company often requires obtaining formal written consent from key third parties, such as landlords and major customers, whose contracts may contain "anti-assignment" clauses that are triggered by an acquisition.
In an M&A transaction, you are not just selling your company; you are also transferring all of its contractual relationships to the new owner. However, you may not have the unilateral right to do so. Many of your company's most important contracts may contain a specific legal clause that requires you to get the consent of the other party before the contract can be assigned to an acquirer.
Identifying and obtaining these third-party consents is a critical and often time-sensitive part of the M&A closing process. A failure to get a required consent can, in a worst-case scenario, give the other party the right to terminate a critical contract, which could jeopardize the entire acquisition.
The "Anti-Assignment" Clause
The source of this requirement is the "assignment" clause found in most commercial contracts. A standard anti-assignment clause will state that neither party may assign its rights or delegate its duties under the agreement to a third party without the prior written consent of the other party.
In the context of an acquisition, particularly a merger or a stock sale where your corporate entity continues to exist under a new owner, the change of control is often legally considered an "assignment" of the contract, which triggers this consent requirement.
Which Contracts Require Consent?
As part of your legal due diligence in preparing for a sale, your M&A counsel will review all of your material contracts to identify any that require a third-party consent. The most common agreements that require consent include:
Office or Lab Leases: Your landlord will almost always have a right to approve any change in the tenant controlling the lease.
Major Customer Contracts: Large enterprise customers often include anti-assignment clauses in their agreements to ensure they have control over who they are doing business with.
Key Technology Licenses: If you have licensed a critical piece of technology from another company, that license agreement will likely require their consent before it can be transferred to an acquirer.
Loan Agreements: If you have a loan or a line of credit, your lender will have a right to consent to a change of control.
The Consent Process
The process for obtaining these consents must be managed carefully.
Timing is Critical: You typically do not want to approach a major customer or landlord to ask for their consent until you are very confident that the acquisition is going to close. Disclosing your sale process too early can create unnecessary business risk.
The Buyer's Involvement: The buyer will be heavily involved in this process. They will want to speak directly with your key customers and partners as part of their own diligence, and the consent process is often handled in parallel.
Securing all necessary third-party consents is a standard "condition to closing" in any merger agreement. It is a critical path item that requires careful planning and coordination between you, your buyer, and your respective legal teams to ensure a smooth and successful closing.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.