With consent of holders: Overview, definition, and example
What is "with consent of holders"?
"With consent of holders" refers to a contractual provision requiring the approval or agreement of a specific group of stakeholders, such as shareholders, bondholders, or other parties, before certain actions can be taken. This clause is often included in agreements to ensure that decisions affecting the rights or interests of holders cannot be made unilaterally by one party.
Why is "with consent of holders" important?
This clause is important because it protects the rights and interests of stakeholders, ensuring they have a say in significant decisions, such as amendments to agreements, changes to payment terms, or other actions that could impact them. It creates a balance of power between the parties and provides a layer of accountability.
For businesses, obtaining the consent of holders fosters trust and collaboration while reducing the risk of disputes or legal challenges. It also ensures compliance with governing laws or bylaws that may require majority or unanimous approval for specific actions.
Understanding "with consent of holders" through an example
Imagine a company issuing bonds to investors. The bond agreement includes a "with consent of holders" clause requiring approval from holders of at least 75% of the bond value before making changes to the payment schedule or interest rate. This ensures that the company cannot unilaterally modify the terms in a way that disadvantages bondholders.
In another example, a shareholder agreement for a private company includes a clause stating that any decision to sell a significant portion of the company’s assets must be made with the consent of holders of at least 51% of the voting shares. This prevents unilateral decisions by the majority owner without sufficient input from other shareholders.
An example of a "with consent of holders" clause
Here’s how a "with consent of holders" clause might appear in a contract:
“Any amendment, modification, or waiver of the terms of this Agreement shall require the written consent of the Holders of at least [Insert Percentage]% of the outstanding [Shares/Bonds/Interests]. No action shall be taken that materially affects the rights of the Holders without obtaining such consent.”
Conclusion
The "with consent of holders" clause ensures that decisions impacting stakeholders cannot be made without their approval, protecting their rights and fostering transparency. For businesses, it promotes accountability and fairness while aligning with legal requirements and governance standards. Including this clause in agreements provides clarity and safeguards the interests of all parties involved in the arrangement.
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.