Governmental consents: Overview, definition, and example
What are governmental consents?
Governmental consents refer to the approvals, permissions, or authorizations required from governmental authorities or regulatory bodies to proceed with certain business actions, transactions, or activities. These consents may be necessary for various business operations, such as mergers, acquisitions, licensing agreements, real estate transactions, or compliance with specific industry regulations. Obtaining the required governmental consents is essential to ensure that a business or transaction is legally valid and complies with applicable laws and regulations.
For example, a company may need to obtain governmental consent from a regulatory agency before acquiring another company in a highly regulated industry, such as telecommunications or finance.
Why are governmental consents important?
Governmental consents are important because they ensure that business activities comply with laws and regulations that protect public interests, safety, and fairness. Failing to obtain the necessary consents can lead to legal penalties, fines, or the invalidation of the transaction or action in question. These consents also serve as a safeguard against potential negative consequences, such as market concentration issues, environmental concerns, or non-compliance with industry-specific standards.
For businesses, obtaining governmental consents is critical for ensuring that transactions and operations are legally sound, minimizing legal risks and ensuring smooth business operations.
Understanding governmental consents through an example
Imagine a large company wants to acquire a smaller competitor in a highly regulated industry like banking. Before the acquisition can proceed, the company must obtain approval from relevant government agencies such as the Federal Reserve or the Federal Trade Commission (FTC), which assess the potential impact on competition and market stability. Without these governmental consents, the acquisition could be blocked or subject to legal challenges.
In another example, a business that plans to build a new manufacturing facility might need to obtain local zoning and environmental approvals from city or state authorities. This consent ensures that the facility complies with land use laws, environmental regulations, and safety standards.
An example of a governmental consents clause
Here’s how a governmental consents clause might look in a contract:
“The Parties agree that this Agreement is contingent upon obtaining all necessary governmental consents, approvals, and authorizations required by applicable laws, regulations, and industry standards. The Parties shall use commercially reasonable efforts to secure such consents and approvals as promptly as possible and shall notify each other of any material developments related to such consents.”
Conclusion
Governmental consents are an essential part of many business transactions and activities. They ensure that businesses operate within the framework of laws and regulations, protecting public interests and maintaining industry standards. Obtaining the required governmental consents helps businesses avoid legal challenges and ensures that transactions are valid and enforceable.
For businesses, understanding the need for governmental consents and including clear provisions in contracts helps streamline operations and transactions while ensuring compliance with applicable legal requirements.
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.