Arrangement agreement: Overview, definition, and example
What is an arrangement agreement?
An arrangement agreement is a formal legal document outlining the terms and conditions of an agreement between two or more parties. This type of agreement typically involves the reorganization, restructuring, or realignment of business activities or assets. In corporate contexts, an arrangement agreement may be used to set out the details of mergers, acquisitions, joint ventures, or the division of assets and liabilities between businesses.
In an arrangement agreement, the parties agree on specific processes, timelines, and obligations that need to be met for the arrangement to take effect. This may involve changes in corporate governance, asset allocation, or financing structures, and it often requires regulatory approval to ensure that the arrangement complies with legal and regulatory standards.
Why is an arrangement agreement important?
An arrangement agreement is important because it provides a structured framework for businesses or parties to formalize their intentions and understand their responsibilities in a complex transaction. Whether it's a merger, acquisition, or asset transfer, an arrangement agreement ensures that both parties are clear about the steps involved and the legal obligations they must meet.
For businesses, having a detailed and clear arrangement agreement helps to prevent misunderstandings, protects their interests, and provides legal backing should any disputes arise. Additionally, this type of agreement is often a critical part of securing financing or regulatory approval for significant transactions.
Understanding an arrangement agreement through an example
Imagine two companies, Company A and Company B, decide to merge. The two companies agree to an arrangement agreement, which outlines the terms of the merger, including the valuation of each company, the distribution of shares in the new company, and the management structure going forward.
The agreement specifies that Company A will contribute 60% of the new company’s equity, while Company B will contribute 40%. It also establishes the legal process for transferring assets, liabilities, and employees. The arrangement agreement will need to be approved by the shareholders of both companies, as well as by regulatory bodies, before the merger can be finalized.
The agreement also addresses potential issues that could arise, such as how any disputes will be handled or what steps will be taken if one company fails to meet its obligations under the agreement.
Example of an arrangement agreement clause
Here’s an example of how an arrangement agreement clause might appear in a contract:
“The Parties agree to proceed with the merger of Company A and Company B, subject to the following terms and conditions: (i) Company A will contribute 60% of the combined equity, and Company B will contribute 40%; (ii) the transfer of all assets and liabilities of both companies shall be completed within [X] days of this agreement’s execution; (iii) regulatory approval shall be sought from the [appropriate regulatory authority], and (iv) in the event of a dispute, the Parties agree to resolve the matter through binding arbitration in [jurisdiction].”
Conclusion
An arrangement agreement is a crucial document for outlining the terms of complex transactions such as mergers, acquisitions, or other business restructuring activities. It ensures that all parties involved have a clear understanding of their roles, responsibilities, and the procedures that must be followed. By setting forth these terms in writing, the agreement helps minimize potential conflicts, secures the necessary approvals, and provides legal protection to all parties involved. Whether in corporate mergers, asset transfers, or joint ventures, an arrangement agreement is a foundational tool for managing and formalizing business changes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.