- A change of control clause is a contract term that reacts when ownership of a company changes, so a share sale can trigger it even though the company itself stays the same.
- Whether a clause applies, and what it requires, depends on its exact wording, so each contract, lease and licence should be read.
- CSBFP financing does not cover share purchases, which affects how a share deal can be funded.
In a share sale, the buyer acquires the owners' shares, and the company carries on as the same business with the same contracts. That is attractive because there is usually less to transfer. The catch is that some agreements are written to notice who owns the company.
A change of control clause is one of those terms. This article explains what it generally does, how a share sale can set it off, and what buyers and sellers can do about it before closing.
This article covers the law of Alberta.
What a change of control clause does
A change of control clause says that if the ownership or control of a company changes, something happens under the contract. It might require notice, require the other party's consent, allow the other party to end the agreement, or change the terms.
These clauses are common in leases, financing agreements, licences, major customer contracts and supplier agreements. They are written differently from one contract to the next, so you cannot assume what one says from another.
How a share sale can trigger it
In a share sale the company does not change, but its owners do. Because many clauses are tied to who owns the shares, selling a majority, or in some contracts any meaningful portion, may count as a change of control.
The wording matters. Look for how the clause defines control, what percentage or voting threshold it uses, whether it covers indirect changes such as a sale higher up the ownership chain, and what the consequence is.
- Notice only: you tell the other party after or before closing.
- Consent required: you must get written approval first.
- Termination right: the other party can end the contract.
- Changed terms: pricing or other terms may be reopened.
Finding the clauses and the owners
The buyer's lawyer normally reviews every significant contract during due diligence. The seller should also know which agreements have these clauses, because the seller may be asked to approach the other party.
Corporate Registry searches, requested through a registry agent, can show the registration date, owners, directors and legal addresses of current or formerly registered Alberta and extra-provincial corporations. A certificate of status confirms status as of a given date only.
Funding and structure considerations
If you plan to use CSBFP financing, note that the program does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded this way. The program can finance the eligible assets of an existing business, capped at the lower of the purchase price or the appraised value of those assets.
Some buyers choose an asset purchase instead of a share purchase partly to avoid relying on third-party consents tied to ownership. Asset deals bring their own assignment issues, so neither route is automatically simpler. A lawyer and accountant can compare them for your situation.
What to do next
- Gather every lease, licence, financing agreement and major contract.
- Search each one for the words change of control, assignment and ownership.
- Note what each clause requires: notice, consent, termination or new terms.
- Decide who will approach each third party and when.
- Make closing conditional on key consents where possible.
- Confirm with your lender how your financing treats a share purchase.
- Have a lawyer review the results before you sign.
Frequently asked questions
Does a share sale always trigger a change of control clause?
No. It depends on how the clause defines control and what threshold it uses. A lawyer should read the exact wording against the planned transaction.
Who should contact the other party about a clause?
The parties usually agree on this in the purchase agreement. Often the seller or the company approaches the other party, with the buyer's input, and the timing is tied to closing.
Can I use CSBFP financing for a share purchase?
No. The program does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded this way.
Can a Corporate Registry search show who owns a company?
Current and historical searches can show the registration date, owners, directors and legal addresses. They are requested through a registry agent, who charges a government fee plus a service fee.
Sources
- ISED – CSBFP FAQ for small businesses — ised-isde.canada.ca
- Alberta.ca – Find corporation details — alberta.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,148.95, tax included. Third-party fees are extra.