A change of control clause triggers not when a contract is formally transferred but when who owns or controls the contracting entity changes underneath it — which is precisely the scenario a share purchase creates and an ordinary assignment clause is powerless to catch.
The logic is spelled out cleanly in the franchise context, where the clause is most heavily used: “a share sale doesn’t legally ‘assign’ anything, because the corporation that signed the franchise agreement remains the same legal entity before and after,” so “a change of control clause is drafted specifically to catch that scenario and require the franchisor’s approval anyway,” because “who actually controls and operates a location matters just as much in a share sale as it does in an asset sale.” The same drafting logic shows up well beyond franchising — in credit agreements, where a change of control is a standard mandatory-prepayment or event-of-default trigger, and in key supply or services contracts a counterparty was only willing to sign because of who was on the other side of the table.
Canadian statute does define “control” tests, just not usually as a single portable number a drafter can borrow. The CCAA’s related-person test for a court-approved distressed sale, for instance, looks at whether a purchaser is a “related person” including anyone with “control in fact” over the debtor — a fact-specific standard, not a bright-line percentage. Contract drafters do the same thing privately: a change of control clause defines its own trigger in the document itself, by reference to voting control, board composition or an ownership threshold the parties agree to, rather than borrowing a number from securities or competition law that was built for a different purpose entirely.
A portfolio company’s $6M senior credit facility defines “Change of Control” as any person or group acquiring more than 50% of its voting shares, and makes that event a mandatory prepayment trigger. The same company’s largest supply agreement has its own change of control clause requiring the counterparty’s consent on the identical trigger. When the sponsor signs a definitive agreement to sell the company in a share sale, both clauses fire at once — the lender must be repaid or must consent to stay in place, and the supply counterparty must consent or the contract is at risk, even though not a single asset or contract is being formally assigned. Two different clauses, two different counterparties, one triggering event.
See also: Assignment clause · PPSA registration search · Share purchase agreement.
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