Assignment and Change of Control provisions address when a party may transfer its obligations under a contract to someone else, either directly, as when a party to the contract assigns its obligations to a third party, or indirectly, as when a party to the contract is acquired by a third party. Many contracts prohibit either party from assigning the agreement, directly or indirectly in connection with an acquisition, without the consent of the other party. A typical assignment provision prohibiting any transfer without consent might read:
Neither this agreement nor any of the rights, interests or obligations hereunder may be assigned, in whole or in part, by operation of law or otherwise, by any of the parties hereto without the prior written consent of the other parties hereto.
While the right to assign is often reciprocal, it is not uncommon for one party (usually the party with the stronger negotiating position) to have the right to assign the contract without consent in certain circumstances.
When entering into an agreement, ask yourself two questions:
1. Would it matter if the other party was acquired by my nearest competitor? If your only obligation under the contract is to pay money for goods or services provided by the other party, it may not matter, but if you are disclosing confidential information about your business you likely don’t want it falling into the wrong hands. If the answer to the question is “yes, it would matter” you’ll want the agreement to place some limits on the other party’s ability to transfer its obligations under the contract.
2. Do I need the ability to transfer the agreement without permission of the other party in certain circumstances? For contracts with employees and other service providers, and for contracts that are material to your business, you may want to reserve the right to transfer the agreement in connection with a sale of your company (perhaps excluding a sale to the other party’s competitor), but for many contracts you may be indifferent and more concerned with limiting your partner’s right to assign the contract.
Remember that unless you have some negotiating leverage, the other party is likely to insist on the same rights to assign the agreement as you have, so if the answer to both questions is “yes,” you may have to decide whether it’s more important to restrict the other party’s right to assign or to have the right to assign yourself.