What is Change of Control?

A change of control takes place when any entity that formally held ultimate authority within a partnership or corporation changes for any reason. As control is shifting within the business, it is common for mid level managers to remain in place and continue to oversee the basic functions of the business. Once the change of control is complete, additional shifts in corporate structure and function may be enacted by the new controlling entity.

A change of control takes place when a company is sold and new owners assume responsibility for the operations of the business. This may occur when a company is acquired by a larger corporation and becomes a subsidiary to the parent company. At the point of acquisition, the parent company becomes the controlling entity. In other instances, the company is sold to a new group of investors, who are free to reorganize operations, sell off portions of the assets in the possession of the business, or continue to operate the company in the same manner as the previous owners.

It is also possible for a change of control to take place as a result of a united effort among the stockholders of the company. In the event that a majority of the investors are unhappy with the performance of the current company officers, they may choose to band together and force the removal of the current executive team. This process opens the door for new officers to come in and make the changes considered to be essential by the investors.

The company process of a change of control can be good for a company, or be the beginning of the end. When investors acquire controlling interest with an eye toward growing the company, a change of control can be very beneficial for the majority of the employees. However, when a change of control places persons who essentially want to dismantle the company and sell off the assets, the action can translate into economical downturns for employees and the communities where the company has operations.