Business readiness

Agreements with limiting clauses

What are Agreements with Limiting Clauses?

Agreements with limiting clauses summarize the provisions that constrain certain rights of your company and/or new investors in case of a future transaction.

These constraints or restrictions could be related to:

  • Change of Control: Clauses that restrict change of ownership or management of your company
  • Change of Business Operations: Clauses that restrict the ability of your company to engage in any business activity across any jurisdiction
  • Change of License Ownership: Clauses thatrestrict the transfer of company operation licenses to third parties.
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Why are agreements with limiting clauses important for business today?

Agreements with limiting clauses enable your company to:

  • Mitigate the risks and liabilities of your company related to non-compliance of limitation clauses
  • Restrict the transfer of ownership and control to third parties, including your competitors
  • Comply with regulatory norms and registrations with various authorities.

Why is it important for an event tomorrow?

Agreements with limiting clauses are important for an event tomorrow, as they help:

  • Evaluate the business activities that your company can undertake, across jurisdictions
  • Make sound financial decisions by accounting for agreements that restrict the transfer of licenses post transaction
  • Evaluate the limitations on issuance and transfer of your company’s shares
  • Put in place the necessary processes and reviews for your company, to prevent any default or lawsuits

Pros of addressing agreements with limiting causes

  • Determine the importance of various licenses in your day-to-day operations and your ability to transfer their ownership
  • Evaluate the financial and legal consequences of any non-compliance with limitation clauses
  • Safeguard the ownership and management of your company
  • Assess the expenses for permits required to engage in a business activity across jurisdictions
  • Assist in contracting with third parties as per the guidelines and avoid any defaults

Cons of not addressing this topic

  • Increase in the financial cost and operational risk as strategies to replace non-transferable licenses are not formulated
  • Increase in the risk of transferring your company’s ownership to competitors
  • Disruption to your company’s business operations due to increased regulatory interventions and legal consequences
  • Higher probability of third-party lawsuits

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