Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
Contents
If you’re growing, bringing in investors, or thinking about selling your company down the track, you’ll quickly run into “change of control” clauses. They pop up in supplier contracts, SaaS subscriptions, finance documents, leases and even in your own company rules.
Handled well, these clauses protect your business from surprises and make deals smoother. Handled poorly, they can delay (or derail) a sale, trigger termination rights at the worst time, or spook investors.
In this guide, we’ll unpack what “change of control” really means in Australia, why these clauses are so common, how to draft or review them, and the practical steps to manage change of control risks in your contracts and company documents.
What Does “Change Of Control” Mean In Australia?
In plain English, a change of control is a significant shift in who calls the shots in a company. That can happen when someone acquires most of the voting power, the right to appoint or remove directors, or otherwise gains real influence over decisions.
Australian contracts often look to the Corporations Act concept of control as a starting point. For a deeper dive on how control is assessed (including direct and indirect control and control through agreements), see our guide on understanding control under the Corporations Act.
In commercial contracts, the definition is a negotiated term. Typical definitions capture:
- A person acquiring more than 50% of issued shares or voting power.
- The power to appoint or remove a majority of directors.
- “Effective control” through agreements, options or other arrangements (even without majority shareholding).
It’s also common to include change of control “by stealth.” For example, if a parent company is sold, that can be a change of control of its subsidiary even if the subsidiary’s immediate shareholders don’t change.
Why Do Contracts Include Change Of Control Clauses?
From a risk point of view, parties often enter a long-term contract because they trust who they’re dealing with. If that counterparty is taken over by a competitor, a private equity fund, or a business with a different risk profile, the commercial assumptions may change overnight.
That’s why many contracts give the non-changing party certain rights if a change of control occurs, such as:
- A right to be notified in advance and request information.
- A right to consent (not to be unreasonably withheld, or sometimes absolute).
- A right to vary pricing or terms, or to impose extra security.
- A right to terminate for convenience or for cause.
These rights sit alongside other change mechanisms, like assignment or novation. If you’re transferring a contract to a buyer as part of a deal, you may need a Deed of Novation or rely on an assignment right. For when assignment is permitted (and when it isn’t), see our breakdown of assignment of contracts.
Common Triggers And How They Work
Not every ownership or board change will trigger the clause. It depends on the definition you’ve agreed. Here are the usual trigger events and what they mean in practice.
1) Share Sale Of The Company
When a buyer acquires shares (often a majority stake), control can change at completion. This is the classic change of control scenario. If you’re structuring an exit, it’s worth understanding the practical trade-offs in a share sale vs asset sale early, because change of control clauses interact with each option differently.
2) Asset Sale Or Business Sale
In an asset sale, the ownership of the company doesn’t change, so “change of control” clauses may not be triggered. However, you’ll likely need to transfer individual contracts to the buyer, which usually requires consent or novation. This is where planning and consent timetables matter.
3) Group Restructures
Internal reorganisations (e.g. moving shares up or down a holding company chain) can trigger change of control if the definition captures changes “directly or indirectly” in control. If you’re doing a pre-sale tidy-up, map your critical contracts and check their definitions before you move anything.
4) Options, Convertible Notes And Voting Arrangements
Clauses often catch changes in control “by agreement.” If a third party gains rights to appoint directors, exercise vetoes, or acquire a majority upon conversion, that may be enough to trigger a change of control even before any shares actually change hands.
5) Management Or Board Changes
Some contracts use a broader, commercial concept of control and include changes in a majority of board members or senior management. This is less common in small business but can appear in contracts with banks or strategic partners.
How To Draft (Or Review) A Change Of Control Clause
Whether you’re negotiating with a customer, supplier, landlord or channel partner, the best clause is one that’s clear, fair, and practical to comply with. Here’s a checklist to guide your drafting or review.
Define Control Clearly
- Set a threshold (e.g. 50% of voting power) and capture board control if relevant.
- Address indirect control (e.g. parent company sales) if that matters to the relationship.
- Exclude benign events (e.g. internal restructures within the same ultimate parent, founder estate planning) to avoid unnecessary admin.
Specify Notice And Consent Mechanics
- Notice: How far in advance must notice be given? What information is required?
- Consent: Is consent required? Can it be withheld in the party’s sole discretion or only on reasonable grounds?
- Timeframes: Include clear response periods and a default position if no response is received.
Set Proportionate Consequences
- Termination: If termination is allowed, is it immediate or after a cure period?
- Price/Terms Review: For long-term supply, consider an option to renegotiate rather than an automatic termination right.
- Security: For finance or high-credit-risk arrangements, allow the non-changing party to seek guarantees or additional security.
Add Anti-Avoidance And Carve-Outs
- Anti-avoidance: Capture attempts to bypass the clause through staggered transfers or proxies.
- Carve-outs: Exclude events like a widely dispersed capital raise or listing if those are part of your growth plans.
Coordinate With Assignment/Novation Clauses
Make sure your change of control clause fits with your assignment and novation provisions. If you want to preserve flexibility in a future sale, avoid absolute prohibitions, and allow a path to consent or novation on agreed terms. A well-drafted Deed of Novation template can save time when a transaction is live.
Change Of Control In Your Company Documents
It’s not just your customer and supplier contracts that matter. Your internal governance documents should also anticipate ownership changes and protect value for existing stakeholders.
Shareholders Agreement
If you have (or plan to have) co-founders or investors, a Shareholders Agreement should cover how control changes are managed. Typical provisions include:
- Pre-emptive rights on share transfers (first refusal for existing shareholders).
- Tag-along rights (minority holders can sell alongside a majority seller).
- Drag-along rights (majority can compel a sale at agreed terms to avoid holdouts).
- Good leaver/bad leaver and vesting mechanics so control doesn’t shift unfairly.
These mechanisms don’t just govern day-to-day; they directly influence how easy it is to sell your company and what price you can achieve.
Company Constitution
Many companies also lock key rules into their Company Constitution. This might include director appointment rights, transfer restrictions, or different share classes with different voting rights. If you’re planning a future raise or exit, consider whether your current settings will help or hinder that pathway.
Share Sales And Transfers
If a change of control will occur via a share sale, put a robust contract in place. A tailored Share Sale Agreement addresses price, warranties, conditions precedent and completion mechanics. For smaller, internal transfers, you may be dealing with off‑market share transfers and registry updates - still important to get right so control changes are properly documented.
What Happens When A Change Of Control Event Is On The Horizon?
Once you know a deal is likely, take a structured approach. Timeframes get tight quickly, and good preparation protects value during negotiations.
1) Map Your “Critical Contracts”
List your key customers, suppliers, partners, landlords, lenders and software platforms. Identify which contracts include change of control, consent, assignment or termination rights and summarise the notice/consent steps for each. This becomes your transaction timetable.
2) Engage Early On Consents
For must-have contracts, start the consent process early. Provide counterparties with a clear summary of the proposed transaction, comfort on continuity of service, and any assurances they reasonably need.
3) Plan For Transfers And Security Interests
If you’re novating contracts or moving assets, have template documents ready and check security interests registered on the Personal Property Securities Register (PPSR). Lenders and key suppliers may need to amend or release registrations. If you’re not familiar with the PPSR, this overview on why the PPSR matters for your business is a helpful starting point.
4) Align Your Internal Approvals
Make sure your board and shareholder approvals line up with what your contracts require. Your Shareholders Agreement or Company Constitution might specify thresholds for major transactions, drag/tag processes, or pre-emptive rights that must be honoured to implement the deal cleanly.
5) Keep Customers And Team Confident
While this guide focuses on legal steps, communication matters. Where contracts allow, controlled messaging to customers and staff reduces churn and protects revenue during the transition. Ensure communication timing doesn’t breach notice obligations.
Negotiation Tips: Balancing Protection And Flexibility
Whether you’re the party seeking protection or the party seeking flexibility, a balanced clause builds stronger relationships and avoids red flags in due diligence.
- Make it mutual where appropriate. If both parties face risk from ownership changes, consider reciprocal rights.
- Use “reasonable” consent standards. Absolute consent rights can deter investors and buyers; “not to be unreasonably withheld” is a common compromise.
- Offer assurances instead of vetoes. If you’re selling, propose covenants around continuity, minimum service levels, or financial standing to give counterparties comfort without handing them a kill switch.
- Stage the process. For example, provide early anonymous notice, followed by detailed disclosure under NDA, then formal consent prior to completion.
- Calibrate to contract value and term. It makes sense for a long, high-value agreement to have more robust protections than a short, low-risk engagement.
Finally, keep the clause practical. If the steps are overly complex or the timelines unrealistic, people will bypass the process - which defeats the purpose of having the clause at all.
Key Takeaways
- “Change of control” is about who really controls your company - not just who holds the shares - and it’s usually defined in the contract itself.
- These clauses protect commercial expectations, but poorly drafted versions can block deals or trigger unnecessary terminations, so clarity and balance matter.
- Know your triggers: a share sale, group restructure, control via agreements, or board changes may all count depending on the definition you’ve agreed.
- Draft with detail: set clear notice and consent mechanics, proportionate consequences, anti-avoidance language and sensible carve-outs.
- Align your internal rules: a well‑structured Shareholders Agreement and Company Constitution make ownership changes smoother and protect value.
- If a transaction is coming, map critical contracts early, plan consents and novations, and check PPSR/security interests to avoid last‑minute surprises.
If you’d like a consultation on drafting or reviewing change of control clauses for your contracts - or to prepare for a sale or investment - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
