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.

A critical company contract, 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.

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