Conditions to the company’s obligation to sell: Overview, definition, and example
What are conditions to the company’s obligation to sell?
Conditions to the company’s obligation to sell refer to specific requirements or events that must be satisfied before a company is required to fulfill its obligation to sell goods, services, or assets under a contract. These conditions provide safeguards, ensuring that certain criteria or prerequisites are met before the company is legally bound to proceed with the sale.
For example, in a merger agreement, the selling company may require approval from its shareholders or regulatory authorities before finalizing the sale.
Why are conditions to the company’s obligation to sell important?
These conditions are important because they protect the company from being obligated to complete a transaction until key risks, approvals, or obligations are addressed. They ensure that the sale proceeds under fair and agreed-upon circumstances, reducing potential disputes or liabilities.
For businesses, including such conditions allows them to maintain control over the transaction process. Without these safeguards, a company could be forced to sell under unfavorable or incomplete terms, potentially harming its interests.
Understanding conditions to the company’s obligation to sell through an example
Imagine a company agrees to sell one of its subsidiaries to another business. The contract includes conditions to the sale, such as obtaining antitrust clearance from regulators and approval from the company’s board of directors. If these conditions are not met, the company is not obligated to complete the sale.
In another scenario, a business selling a manufacturing plant might include a condition requiring the buyer to secure financing before the sale can close. If the buyer fails to obtain financing, the company is not required to go through with the transaction.
An example of a conditions to the company’s obligation to sell clause
Here’s how such a clause might appear in a contract:
“The Company’s obligation to sell under this Agreement is subject to the fulfillment of the following conditions: (i) receipt of all necessary regulatory approvals, (ii) approval by the Company’s shareholders, and (iii) confirmation that the Buyer has secured the necessary financing for the transaction.”
Conclusion
Conditions to the company’s obligation to sell provide critical safeguards, ensuring that specific requirements or risks are addressed before a company is bound to complete a sale. By including these conditions, businesses can reduce uncertainty, protect their interests, and ensure that transactions are carried out on fair and agreed-upon terms.
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.