Generally a transfer of control occurs as part of an organizational or contractual change. The controlling party gives up its control of either the organization or a specific asset, thus transferring control to a new party. The manner in which control transfers between the parties varies by transaction.
A contractual transfer of control is documented in an agreement. These types of control changes may be defined in the agreement or might occur as a result of a legal requirement. Regulations may change over time, thus setting new requirements for the specific asset. These changed requirements can force a control transfer of either an organization or one of the organization’s assets.
Corporate or partnership ownership change is one of the ways to transfer control of such an organization. Ownership change may be the result of a merger or acquisition of all or a portion of the company or its assets. A change in the majority of a board of directors of an organization may constitute a transfer of control. Certain defined thresholds are set forth within regulations and contracts to designate what is considered to be a control transfer.
In some instances, a transfer of control must be applied for in advance or approved by a governing body. These regulations are set in order to maintain safety or protect the general public in some way. Licenses to operate certain types of assets are granted based upon the experience of a given organization. A transfer of control in such an organization may require prior approval or the organization may be forced to forfeit its operational license.
Officers of corporations may have a control transfer agreement to allow them to focus on their fiduciary duty to the corporation rather than on the ownership of the corporation. These types of agreements set out specific parameters for a change of control. Once these parameters have been met, the officers are entitled to certain financial protections as set forth in the agreement. These protections might include a severance package or the right to resign with certain benefits.
Transfer of control may also simply be negotiated as part of a transaction. One party may own a specific asset that it chooses to sell to another party. The transactional agreement sets forth the terms under which the selling party transfers control of its asset to the purchasing party. The purchasing party acquires control of said asset upon the completion of the requirements stipulated within the agreement.
