Successor: Overview, definition and example
What is a successor?
A successor is a person or company that takes over the rights, responsibilities, or ownership of another under a legal agreement. This often happens when a business is sold, merges with another company, or transfers its obligations to a new entity.
For example, if a company is acquired by another, the acquiring company becomes the successor, stepping into the original company’s role under its contracts.
Why is a successor important?
Successors are important because they ensure continuity in agreements and responsibilities, even if the original party changes. This provides stability and clarity in situations like mergers, acquisitions, or leadership transitions.
In business, successor clauses in contracts protect all parties by specifying that the new entity will honor the original terms of the agreement. Without this, a change in ownership or structure could disrupt operations or create uncertainty about who’s responsible for fulfilling obligations.
Understanding successor through an example
Imagine a software company signs a long-term licensing agreement with a client. Later, the company is acquired by a larger corporation. The larger corporation, as the successor, assumes the original company’s responsibilities, continuing to provide the software and support outlined in the agreement.
In another case, a commercial lease includes a successor clause. If the landlord sells the building, the new owner becomes the successor and takes on all the landlord’s responsibilities, such as property maintenance and honoring the lease terms.
An example of a successor clause
Here’s how a successor clause might look in a contract:
“This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.”
Conclusion
A successor is the entity or person that steps into the shoes of another party under a contract or agreement, ensuring continuity when changes like mergers, acquisitions, or transfers occur.
By understanding the role of successors, businesses can safeguard their rights and responsibilities, ensuring smooth transitions and minimizing disruption during significant organizational changes. It’s about keeping agreements steady, no matter who’s in charge.
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.