Change of control

What it is

A change of control is a sale or merger that moves control of the business to someone else. Contracts and incentive plans use the term to decide what happens to senior staff when that happens.

The definition matters. It usually covers a sale of more than half the shares, a merger, or a sale of all or most of the business. Some definitions also catch a change in who controls the board.

Share sale or business sale

The two work differently for employees:

• In a share sale, your employer stays the same company. Only its owner changes. Your contract continues as before, unless it says otherwise.
• In a sale of the business or part of it, the staff may move to the buyer as a transfer of business, on their existing terms.

Either can trigger change of control terms, if the definition says so.

Single and double triggers

• A single trigger gives you a benefit on the change of control itself: awards vest, or a bonus is paid.
• A double trigger needs a second event as well, usually your dismissal, or your resignation because your role has been materially reduced, within a set period after the change.

Buyers prefer double triggers, because they want to keep the people they are buying.

What to ask for

• a clear definition of change of control;
• treatment of share awards on a change of control, in the plan rules and your award letters;
• the right to resign with good leaver treatment if your role, pay or reporting line is materially reduced after a change;
• longer notice, or a payment, if you are dismissed within a set period after a change.

These terms are much easier to agree when you join than when a sale is already under way.