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Expert Answers: Does the new company owner have to honour previous agreements?

Readers questions: A small limited company has signed an agreement with me to provide certain services when its building project is complete. So my question is if the company is sold on, does the acquiring company have to honour this agreement with me?

Does the new company owner have to honour previous agreements?

Expert answer: The expert for this piece is Charlotte Gerrish, the founding lawyer of Gerrish Legal.

The answer is – it depends!

It depends on the type of sale that has or will take place.

For example, if the company is sold via a “share sale” (I.e., the shares are bought by the new owners), the company remains the same and doesn’t change. It’s still the same legal entity that signed your contract, regardless of the share sale, which means that the contract would continue and remain in force.

If the sale is what’s known as an “asset sale”, then the buyer would only be taking over the assets, which can include contracts. In an asset sale, the contracts could be taken over by the new owner, but to do so, you’d need to enter into an assignment agreement to assign the rights and obligations to the new owner.

In an asset sale, depending on what’s been agreed, there’s no obligation in the new buyer to take on existing contracts. If the new owner of the assets doesn’t take on your contract, the original company you contracted with would have to terminate your agreement if they no longer required your services.

It’s worth checking your agreement for any clauses related to “assignment” or “change of control” or “termination” to see what the terms state and follow the procedure that’s set out – for example, whether your consent is required, what the notice periods might be or if any assignment needs to be done in writing.

These situations can be pretty complex if you’re not used to them, so it’s usually worth seeking specialist advice from a lawyer if you’re unclear. Also, having a lawyer look over your contracts before you sign them is usually worth it as they can flag these provisions before you’re legally bound which will save you a potential headache (and costs) later on!

More on ask the experts and small business legal matters.

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