assignment letter acquisition

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Acquiring Contracts in an M&A Transaction

When acquiring a business, often a key component is the contracts to which the company is a party to. Ensuring the transfer of any such contracts can have significant impacts on the structure and timing of the acquisition of a business.

The General Rule and Exceptions

The general rule is that contracts are freely assignable and can be transferred from one party to another. There are, however, exceptions to this general rule. Contracts that are personal in nature, involving personal relations or personal skills, are not assignable. Also, an assignment of a contract cannot result in an increase of the burden on the remaining third party to the contract. Finally, contracts may expressly prohibit assignment of the contract or provide that an assignment can only occur under certain conditions. In the context of most M&A transactions, the relevant exception will be anti-assignment provisions in the contract itself.

Anti-Assignment Provisions

A standard assignment clause will prohibit the transfer of a contract without consent and may specify whether such consent can or cannot be unreasonably withheld. These provisions are typically included to ensure that each of the parties have control over who they engage in commercial arrangements and continue to do business with.  A simple prohibition against assignment however, will not be triggered in the sale of a company by way of a share sale. Therefore, anti-assignment provisions are often include language that addresses the transfer of ownership on the sale of the shares of a company by prohibiting a change of control of a party to a contract without consent.

Asset Purchases

In an asset purchase transaction, the vendor is the company that owns the assets being sold. The resulting transfer of assets will include those desired contracts to which the company is a party to. Such transfer of contracts will be done by way of an assignment, thereby triggering any assignment provision and the corresponding need to obtain consent of the other party(ies) to such contract(s).

Share Purchases

In a share purchase transaction, the vendor is the shareholder(s) of the target company. The vendor sells the shares to the purchaser and there is no transfer of assets as they remain the assets of the target company. In this context, an assignment of a contract is not needed as the parties to the contract remain the same. The need to obtain consent would then only arise if the assignment provision specifically prohibited a change of control.

Seeking Consent

When proceeding with either an asset or share purchase where the consent of third parties is required, the timing of obtaining such consents must be considered. The contracts themselves may dictate when consent must be obtained and may require all costs be covered with respect to such consent. Obtaining the consent of third parties also raises issues with respect to the confidentiality of a transaction, where one or both parties wish to keep the proposed transaction confidential. The impact of not obtaining required consents should be considered, especially if such contracts are material to the business. Because of these various issues it is important to review any contracts that will be transferred or remain with the target company early in the process and discuss how any required consents will be obtained.

Assigning Contracts

To effect an assignment in the context of an asset purchase, the parties should enter into an assignment agreement whereby the vendor assigns and the purchaser assumes the contract and all rights, obligations and benefits thereunder. Often a contract will specify that the vendor will not be released of its obligations on an assignment. In such instances, the vendor and purchaser should address each of their obligations going forward. Typically, the purchaser will be solely responsible and will indemnify the vendor for any non-performance or breach by the purchaser under the contract from and after the date of assignment.  If consent for the assignment is required from a third party, such party can either be made a party to the assignment agreement or its separate written consent can be obtained. If consent is not required, notice should be given to the third party that the assignment has or will occur.  To effect an assignment in the context of a share purchase, only the documents effecting the sale and transfer of shares is needed as between the vendor and purchaser. Depending on the presence and content of any change of control provisions in each contract the target company is a party to, notice to or consent of the third party to each of the contracts may be necessary.

Although generally contracts are assignable, when contemplating the purchase or sale of a business consideration should be given to any contracts that will be assigned or remain with the target company. Each contract should be carefully reviewed in the context of the specific type of transaction so as to determine whether any consents or notices will be required before or after completion of the proposed transaction. Specifically, in the context of an asset purchase, only anti-assignment provisions will necessitate obtaining consent, and in the context of a share purchase, only change of control provisions will necessitate obtaining consent. Each party should also have regard to the timing and confidentiality issues that may arise in obtaining any necessary consents and all assignments or changes in control should be properly documented.

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Do existing contracts get automatically transferred to the acquiring company?

Company A and Company B have a business relationship lasting for years. All kinds of agreements are in place between them. License Agreements, Supply Agreements, Development Agreements and so on.

Company A gets acquired by Company C. After closing, former Company A now operates as Company AC. What happens to all the existing contracts where Company A was a Party? Do they get automatically transferred?

Having to assign all the existing contracts seems to be an "impossible" task, but i do not know the leagl basis for the transfer. Can anyone shed some light both in US and European jurisdictions?

• contract-law

• Depends upon how the transaction is structured. The question provides insufficient factual detail to know. –  ohwilleke Commented Oct 24, 2019 at 19:01

5 Answers 5

Contracts are generally assignable, meaning that one company can assign their rights, duties and obligations under the contract. Assignment may be specifically barred by the contract, or it may have certain terms (prior written consent, etc.) attached, but if not, a contract is likely freely assignable. Though a contract is not necessarily "automatically transferred" the reason Company C buys Company A is for its ability to earn Company C over time, which includes the contract between A & B. So unless the original contract has a "no assignments clause" or if an assignment is otherwise impossible or illegal, it is likely that A can freely assign the contract to C.

• The OP asks if contracts are automatically assigned to AC, which I would interpret as subject to the universal "unless prohibited by law, or precluded by specific clause" caveat. In lieu of any explicit clause in the A-Customer or A-B contracts regarding assignment, i.e. if A doesn't ever think of the issue, and falls off the face of the planet, what happens to the A-Customer contract? Citations of case law would be appropriate. –  user6726 Commented May 31, 2017 at 0:41

There are several legal concepts going on in your question here, all of which are relevant to the answer:

• separate legal entities
• privity of contract
• novation of contracts

The answer to your question is it depends on the law of governing the contract. Each State in the US (California, New York, Georgia, …) and each country in the EU (England, France, Spain, …) has its own system of contract law.

Each contract that you refer to in your question might be governed by the law of a different country.

Separate Legal Entities

In HL Bolton Engineering Co Ltd v TJ Graham Sons Ltd 1957 1 QB 159, Denning LJ described companies like this:

A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere [employees] and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.

The hallmarks of a separate legal entity are that it can:

• buy, sell and own property of any kind in its own name
• agree to legally binding contracts, and
• sue and be sued in its own name.

Privity of Contract

The doctrine of privity of contract consists of two general rules, one of which is:

• a person who is not a party to a contract cannot sue on the contract to obtain the promised performance.

There are exceptions to privity of contract in some countries’ systems of law.

Novation of Contracts

There is no such thing as an assignment of a contract.

It was held in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd 1993 UKHL 4 (22 July 1993):

It is trite law that it is, in any event, impossible to assign "the contract" as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation. Although it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequently use those words inaccurately to describe an assignment of the benefit of a contract since every lawyer knows that the burden of a contract cannot be assigned.

In short, contracts are not assigned:

• ownership of assets is assigned.
• contractual rights are "transferred": they're novated.

The legal obligations under a contract cannot be "assigned" or transferred to another person, without agreement from the other contracting party(ies).

To transfer (or “assign”, which is a misnomer) contractual obligations the requirements of novation must be satisfied.

In novation, there is no assignment of rights and obligations: a new contract is created with new rights and obligations, with a new contracting party.

Sales of Companies

So, to answer your question, what sometimes happens is the buyer of Company A (ie Company C) puts the contracting parties of Company A on notice that Company A has been acquired and that Company C will now be fulfilling Company A’s contracts.

Is that an “assignment” of the contract?

Well no, but of the contracting parties of Company A then order products or receive products from Company C, and everyone is happy.

The contracting parties to Company A could say to Company A “You’re in breach of contract for not performing my contract. I can sue you for my loss, caused by your non-performance of the contract”.

Company A could then say, “Well that might be the case, but then you need to mitigate your loss for my breach of contract. There’s a company over there called Company C that can perform the contract that we used to have together on the same terms with you.”.

In respect of your reference to Company AC, please see the heading "Separate Legal Entities" above. As I understand it, there is some sort of doctrine of merger of companies in some States of the US (such as Delaware, I believe), but I don't get into that here, because I'm not a US lawyer. That doctrine of merger might be relevant to the answer to your question under the law of some States of the US.

To an English contract lawyer, going by what you say in your question, Company AC is a trading name of Company C (or vice versa) or Company C changed it's name to "Company AC".

It might work differently in the governing law of the share purchase agreement or asset sale agreement.

If you’re thinking of relying on any of the above for an actual acquisition, please seek medical help.

• Nit: "England" is not a member state of the EU, "the United Kingdom" is. Further, for most purposes (in particular contract law), "England" is not a jurisdiction, "England and Wales" is. (There is some divergence between the two because laws passed by the Welsh Assembly do not apply in England.) –  Martin Bonner supports Monica Commented Oct 23, 2019 at 8:15
• "the United Kingdom" does not have its own system of contract law. England does. England can be the lex fori (it is after all, a country, as is Wales) and indeed the lex loci contractus. Contracting parties that say that "UK law" is the law governing their contract cause themselves problems. –  lellis Commented Oct 23, 2019 at 15:55
• I am well aware that there is no (or very little) such thing as "UK law". My point is that "England" does not have its own system of contract law. "England and Wales" does. –  Martin Bonner supports Monica Commented Oct 23, 2019 at 16:38
• “If you’re thinking of relying on any of the above for an actual acquisition, please seek medical help.“ - yes, that is exactly what I was thinking ;) –  paul black Commented Oct 24, 2019 at 20:22

Parties to contracts must be people.

People are people and companies are (legally) people but businesses are not people.

Company A is bound by the provisions of its contracts so long as the contracts have not been terminated. One of the ways that a contract will be terminated is if Company A ceases to exist; this is similar to the fact that the death of a (natural) person will also terminate a contract.

If Company C wants to keep the rights and obligations of Company A's contracts then they must:

• keep Company A operating as a subsidiary and extract the benefits through dividend or share buy-back payments or the operation of another contract,
• The contract itself says they aren’t
• They are personal services contracts. That is, contracts where only the contracted individual can perform the service, for example, employment contracts. Because of this quirk, most jurisdictions have transmission of business laws that allow employment contracts to be transferred if those laws are followed.
• Notwithstanding, the obligations of the contract are not transferable and while Company C can get the benefit, Company A remains liable for the obligations. The assignment is only enforcable if the other party to the contract is informed of it.
• Novate the contract. With the agreement of all parties, Company C can be substituted for Company A and assume all the rights and obligations under the contract. That agreement can be already in the contract; that is it may be a term of the contract that one party or the other can novate the contract and the counterparty must facilitate this.
• make new contracts on the same or similar terms with the other party.

Contracts are never "automatically transferred", the party transferring from and the one transferring to have to make the transfer happen, usually they make a contract. Because contracts usually contain both rights and obligations, transferring one will be good consideration for both sides.

A company, like a natural person, can change their name while legally remaining the same company and this will not terminate any contracts.

If the company changes owners in whole or in part, it is still the same company and this will not terminate any contracts. If, instead, the company sells its business (which is an asset of the company that it can sell, like a car or a building), then the contracts are novated as part of that sale if the other party agrees, or assigned if they don't.

• What about if former company A only changes its designation to company AC, as described above, and company AC keeps reg nr, address... of acquired company? Also, does your answer applies equally to cases where the company C aquires all or the majority of shares of A? –  paul black Commented Feb 26, 2016 at 0:38

Because the case is equity/stock purchase (as opposed to assets purchase), the answer is "yes".

From here :

All asset and liabilities transfer at carrying value The only way to eliminate unwanted liabilities is to contractually sell them back to the target

All liabilities transfer to the buyer by operation of law, wanted or not. However, the buyer can contractually allocate liabilities to the seller by selling them back.

So, what happens is the contracts get transferred automatically from A to C, but then, if the parties agree, the contracts will be transferred back to A/AC.

Because A has changed its name to AC (as opposed to staying unrelated to C), it would be reasonable to assume that this is exactly what happened: AC has got the contracts back.

Agreew with last commenter's view. The contract should have an assignemnt/permitted transfer provision whereby certain parties can assume the contract without consent of the counterparty. Nevertheless, if Company A is purchased and now operates as a JV Company AC and there's no change of control in that company A still operates its own business as if it were independently owned, then the contract effectively woult not have been assigned and and thus the assingment clause would not trigger. This could be the case where even though company A's owners no longer full own company a following the dilution or being taken out by Company C, they still retain manageral control over Company A and as such there's no change of control triggered.

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Assignment of Contract

Jump to section, what is an assignment of contract.

An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.

How Does Assignment of Contract Work?

An assignment of contract is simpler than you might think.

The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.

When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.

In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.

The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.

Check out this article to learn more about how assigning a contract works.

Contract Assignment Examples

Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:

Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.

Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.

Here is an article where you can find out more about contract assignments.

Benjamin W.

Assignment of Contract in Real Estate

Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .

This process is called real estate wholesaling.

Real Estate Wholesaling

Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.

The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.

This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.

This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.

But how do real estate wholesalers find these properties?

It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:

• Direct mailers
• Place newspaper ads
• Make posts in online forums
• Social media posts

The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.

Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.

In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.

After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.

Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.

If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.

One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.

On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.

Learn more about assignment of contract in real estate by checking out this article .

Who Handles Assignment of Contract?

The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Don’t Confuse Change of Control and Assignment Terms

• David Tollen
• September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

• Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

• Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
• Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
• Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
• All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

• Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

• Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
• No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
• Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon  here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has  options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team).   David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

© 2020, 2022 by Tech Contracts Academy, LLC. All rights reserved.

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Government Contract Novation Vs Assignment of Contract & FAR 42.1204 Novation Clause

All should be aware that the contracting officer does not have to approve every assignment of contract transactions under the FAR 42.1204 contract novation clause .

• Avoid the costly mistake of assuming that the government must approve all novations.
• If done improperly, contractors can be found in breach of contract terms and can even face suspension or debarment .

Novation Agreement FAR 42.1204 Definition

In federal government contracting,  developing a novation can be somewhat unique because depending on the facts of each case, the original parties may still be responsible for performance to the government.  Whereas, in the commercial sector, the contract novation definition means that a new party to the contract essential substitutes the original party. In other words in the commercial sector, the original party’s obligation is discharged and substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract.

Federal Government Contract Novation vs Assignment of Contract

Business Asset Purchase Agreement and Contract Assignment  Clause Issues

What is the difference between assignment and novation? Simply executing a business asset purchase agreement and a signed novation contact agreement  when buying or selling a business is not the end of the legal analysis when there is a government contract involved.  The contracting officer must approve the assignment of government contracts and or novation agreement . Your novation letter should address critical issues that answer the contracting officer’s concerns about the risk of performance. Novating government contracts is all about minimizing the risk to the agency.

In one case , SBA OHA ignored the argument that when novating a contract, its purchase and sale contract with the buyer had the legal effect of divesting the seller of any control over the current contracts. In that case, there was no formally approved novation agreement FAR contract. As a result, the whole transaction went to waste because the parties lacked a full understanding of the rules. A Government contract may not be automatically transferred to a third party. See 41 USC 15.

• In government contracting, if there is a performance problem, for example in construction, and a termination for default is an issue, or the surety is called upon for obligations under a performance bond, then the original party may not necessarily be discharged.
• Assignment of government contracts decisions, when there is a purchase and sale agreement involving a company that has existing government contracts, should be met with caution.

On the issue of contract novation vs assignment , although the FAR 42.1204 assignment novation clause allows the buying and selling parties to execute a novation vs assignment agreement due to an asset purchase or stock sale, companies should still assess legal issues related to violation of SBA small business size standards. 

• Companies should always keep the agency involved from the beginning of the process to the end.

41 USC 6305 – Contract Assignment Clause – Prohibition on transfer of contract and certain allowable assignments

Under the federal contract assignment clauses, when there are business sales that involve government contracts, the purchase and sale agreement suggests that the contracts would be transferred to the buyer either through a business asset purchase agreement sale or stock sale.

However, the reality is that although FAR 42.1204 allows for a novation of contract agreement, the contracting officer is not obligated to approve it.  A federal government contracting agency, only when it determines it to be in its interest, may accept a third party as the successor in interest when the third party’s interest in the contract arises out of the transfer of all of the contractor’s assets or the entire portion of the contractor’s assets involved in performing the contract. FAR 42.1204 (a). See also How Do Federal Government Contractors Deal With COVID-19 Problems ?

• The contracting officer is not forced to approve the  FAR novation clause language if the transaction is not in the government’s best interest.
• If the government declines to novate a contract, the original contractor is still responsible for performance. FAR 42.1204 (c) contract novation clause.
• If the assignment of contract is not recognized by the contracting officer, and the original contractor does not perform, the original contractor can be terminated for default.

Potential SBA Size Standard Violations

When assessing government novation contract law rules, the SBA found in one case that since there was no approved assignment of the contract through an approved government novation agreement, the two businesses were deemed affiliated through the identity of interest rule.

On appeal, OHA found that since there was no formal contract novation, the seller was still responsible for the contract performance, and both companies were in the same line of business. In that case, the SBA also found that there was no clear fracture between the buyer and seller. The two businesses were therefore also affiliated with the newly organized concern rule.

Help With Government Contracting Companies for Sale

Oftentimes, buyers and sellers do not understand the complex regulations involved with government contracting companies for sale. Not only are novation agreements a potential issue, the due diligence needed and the ability to address buyers’ other business relationships that can impact their small business size status can be a huge problem. Contact Theodore Watson at 720.941.7200 for immediate help.

Legal Issues Regarding Novation Vs Assignment 

Assignment vs novation. Know the difference: There are several legal issues that arise under federal contract novation agreement FAR law during the purchase and business sales, assignment and transfer of federal contracts when government contracts are involved.  Common issues that occur with the assignment novation clause terms include: (1) whether the seller is simply trying to sell the contract with no real assets, (2) how to structure the asset purchase agreement and whether wait for contracting officer novation approval first and (3) to what degree does the contracting officer have to approve the novation. The first step is to be proactive in the early stages of the asset purchase or stock sale process.

Having the right contract clauses in the sales agreement is critical in the event that the contracting officer does not approve the contract novation. Other issues with novating a contract include the buyer maintaining its small business status in the event of recertification or option year decisions. Find out more about Signs of Being Under Investigation (Federal)

For additional questions about what is the difference between assignment and novation for federal contractors buying and selling a business that includes an assignment and FAR novation agreement or assignment of contract issues under FAR 42.1204 novation clause, or need help with government contracting companies for sale, call Watson & Associates’ government  contract novation law lawyers for immediate help. Call 1-866-601-5518. FREE INITIAL CONSULTATION.

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Home Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Written by Josh Sainsbury | Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

Related Documents

• Sales and Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Contract : An agreement in which each party agrees to an exchange, typically involving money, goods, or services.
• Lease/Rental Agreement : A lease agreement is a written document that officially recognizes a legally binding relationship between two parties -- a landlord and a tenant.
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The document above is a sample. Please note that the language you see here may change depending on your answers to the document questionnaire.

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FAC Number: 2024-06 Effective Date: 08/29/2024

Subpart 42.12 - Novation and Change-of-Name Agreements

42.1200 scope of subpart..

This subpart prescribes policies and procedures for-

(a) Recognition of a successor in interest to Government contracts when contractor assets are transferred;

(b) Recognition of a change in a contractor’s name; and

(c) Execution of novation agreements and change-of-name agreements by the responsible contracting officer .

42.1201 [Reserved]

42.1202 responsibility for executing agreements..

The contracting officer responsible for processing and executing novation and change-of-name agreements shall be determined as follows:

(a) If any of the affected contracts held by the transferor have been assigned to an administrative contracting officer (ACO) (see 2.1 and 42.202 ), the responsible contracting officer shall be-

(1) This ACO; or

(2) The ACO responsible for the corporate office, if affected contracts are in more than one plant or division of the transferor.

(b) If none of the affected contracts held by the transferor have been assigned to an ACO, the contracting officer responsible for the largest unsettled (unbilled plus billed but unpaid) dollar balance of contracts shall be the responsible contracting officer .

(c) If several transferors are involved, the responsible contracting officer shall be-

(1) The ACO administering the largest unsettled dollar balance; or

(2) The contracting officer (or ACO) designated by the agency having the largest unsettled dollar balance, if none of the affected contracts have been assigned to an ACO.

42.1203 Processing agreements.

(a) If a contractor wishes the Government to recognize a successor in interest to its contracts or a name change, the contractor must submit a written request to the responsible contracting officer (see 42.1202 ). If the contractor received its contract under subpart  8.7 under 41 U.S.C. chapter 85, Committee for Purchase from People Who Are Blind or Severely Disabled, use the procedures at 8.716 instead.

(b) The responsible contracting officer shall -

(1) Identify and request that the contractor submit the information necessary to evaluate the proposed agreement for recognizing a successor in interest or a name change. This information should include the items identified in 42.1204 (e) and (f) or 42.1205 (a), as applicable;

(2) Notify each contract administration office and contracting office affected by a proposed agreement for recognizing a successor in interest, and provide those offices with a list of all affected contracts; and

(3) Request submission of any comments or objections to the proposed transfer within 30 days after notification. Any submission should be accompanied by supporting documentation.

(c) Upon receipt of the necessary information, the responsible contracting officer shall determine whether or not it is in the Government’s interest to recognize the proposed successor in interest on the basis of-

(1) The comments received from the affected contract administration offices and contracting offices ;

(2) The proposed successor’s responsibility under subpart  9.1 , Responsible Prospective Contractors ; and

(3) Any factor relating to the proposed successor’s performance of contracts with the Government that the Government determines would impair the proposed successor’s ability to perform the contract satisfactorily.

(d) The execution of a novation agreement does not preclude the use of any other method available to the contracting officer to resolve any other issues related to a transfer of contractor assets, including the treatment of costs.

(e) Any separate agreement between the transferor and transferee regarding the assumption of liabilities ( e.g., long-term incentive compensation plans, cost accounting standards noncompliances, environmental cleanup costs, and final overhead costs) should be referenced specifically in the novation agreement .

(f) Before novation and change-of-name agreements are executed, the responsible contracting officer shall ensure that Government counsel has reviewed them for legal sufficiency.

(g) The responsible contracting officer shall -

(1) Forward a signed copy of the executed novation or change-of-name agreement to the transferor and to the transferee; and

(2) Retain a signed copy in the case file.

(h) Following distribution of the agreement, the responsible contracting officer shall -

(1) Prepare a Standard Form 30 , Amendment of Solicitation /Modification of Contract, incorporating a summary of the agreement and attaching a complete list of contracts affected;

(2) Retain the original Standard Form 30 with the attached list in the case file;

(3) Send a signed copy of the Standard Form 30 , with attached list to the transferor and to the transferee; and

(4) Send a copy of this Standard Form 30 with attached list to each contract administration office or contracting office involved, which shall be responsible for further appropriate distribution.

42.1204 Applicability of novation agreements.

(a) 41 U.S.C.6305 prohibits transfer of Government contracts from the contractor to a third party. The Government may , when in its interest, recognize a third party as the successor in interest to a Government contract when the third party’s interest in the contract arises out of the transfer of-

(1) All the contractor’s assets; or

(2) The entire portion of the assets involved in performing the contract. (See 14.404-2 (l) for the effect of novation agreements after bid opening but before award.) Examples of such transactions include, but are not limited to-

(i) Sale of these assets with a provision for assuming liabilities;

(ii) Transfer of these assets incident to a merger or corporate consolidation; and

(iii) Incorporation of a proprietorship or partnership, or formation of a partnership.

(b) A novation agreement is unnecessary when there is a change in the ownership of a contractor as a result of a stock purchase, with no legal change in the contracting party, and when that contracting party remains in control of the assets and is the party performing the contract. However, whether there is a purchase of assets or a stock purchase, there may be issues related to the change in ownership that appropriately should be addressed in a formal agreement between the contractor and the Government (see 42.1203 (e)).

(c) When it is in the Government’s interest not to concur in the transfer of a contract from one company to another company, the original contractor remains under contractual obligation to the Government, and the contract may be terminated for reasons of default, should the original contractor not perform.

(d) When considering whether to recognize a third party as a successor in interest to Government contracts, the responsible contracting officer shall identify and evaluate any significant organizational conflicts of interest in accordance with subpart  9.5 . If the responsible contracting officer determines that a conflict of interest cannot be resolved, but that it is in the best interest of the Government to approve the novation request, a request for a waiver may be submitted in accordance with the procedures at 9.503 .

(e) When a contractor asks the Government to recognize a successor in interest, the contractor shall submit to the responsible contracting officer three signed copies of the proposed novation agreement and one copy each, as applicable, of the following:

(1) The document describing the proposed transaction, e.g., purchase/sale agreement or memorandum of understanding.

(2) A list of all affected contracts between the transferor and the Government, as of the date of sale or transfer of assets, showing for each, as of that date, the-

(i) Contract number and type;

(ii) Name and address of the contracting office ;

(iii) Total dollar value, as amended; and

(iv) Approximate remaining unpaid balance.

(3) Evidence of the transferee’s capability to perform.

(4) Any other relevant information requested by the responsible contracting officer .

(f) Except as provided in paragraph (g) of this section, the contractor shall submit to the responsible contracting officer one copy of each of the following documents, as applicable, as the documents become available:

(1) An authenticated copy of the instrument effecting the transfer of assets; e.g., bill of sale, certificate of merger, contract, deed, agreement, or court decree.

(2) A certified copy of each resolution of the corporate parties’ boards of directors authorizing the transfer of assets.

(3) A certified copy of the minutes of each corporate party’s stockholder meeting necessary to approve the transfer of assets.

(4) An authenticated copy of the transferee’s certificate and articles of incorporation, if a corporation was formed for the purpose of receiving the assets involved in performing the Government contracts.

(5) The opinion of legal counsel for the transferor and transferee stating that the transfer was properly effected under applicable law and the effective date of transfer.

(6) Balance sheets of the transferor and transferee as of the dates immediately before and after the transfer of assets, audited by independent accountants.

(7) Evidence that any security clearance requirements have been met.

(8) The consent of sureties on all contracts listed under paragraph (e)(2) of this section if bonds are required, or a statement from the transferor that none are required.

(g) If the Government has acquired the documents during its participation in the pre-merger or pre- acquisition review process, or the Government’s interests are adequately protected with an alternative formulation of the information, the responsible contracting officer may modify the list of documents to be submitted by the contractor.

(h) When recognizing a successor in interest to a Government contract is consistent with the Government’s interest, the responsible contracting officer shall execute a novation agreement with the transferor and the transferee. It shall ordinarily provide in part that-

(1) The transferee assumes all the transferor’s obligations under the contract;

(2) The transferor waives all rights under the contract against the Government;

(3) The transferor guarantees performance of the contract by the transferee (a satisfactory performance bond may be accepted instead of the guarantee); and

(4) Nothing in the agreement shall relieve the transferor or transferee from compliance with any Federal law.

(i) The responsible contracting officer shall use the following format for agreements when the transferor and transferee are corporations and all the transferor’s assets are transferred. This format may be adapted to fit specific cases and may be used as a guide in preparing similar agreements for other situations.

Novation Agreement

The ABC Corporation (Transferor), a corporation duly organized and existing under the laws of __________ [ insert State ] with its principal office in ____________ [ insert city ]; the XYZ Corporation (Transferee), [ if appropriate add "formerly known as the EFG Corporation" ] a corporation duly organized and existing under the laws of _________ [ insert State ] with its principal office in ____________ [ insert city ]; and the United States of America (Government) enter into this Agreement as of ____________ [ insert the date transfer of assets became effective under applicable State law ].

(a) The parties agree to the following facts:

(1) The Government, represented by various Contracting Officers of the ______________ [ insert name(s) of agency(ies) ], has entered into certain contracts with the Transferor, namely: ____________ [ insert contract or purchase order identifications ]; [ or delete "namely" and insert "as shown in the attached list marked ‘Exhibit A’ and incorporated in this Agreement by reference." ]. The term "the contracts," as used in this Agreement, means the above contracts and purchase orders and all other contracts and purchase orders , including all modifications, made between the Government and the Transferor before the effective date of this Agreement (whether or not performance and payment have been completed and releases executed if the Government or the Transferor has any remaining rights, duties, or obligations under these contracts and purchase orders ). Included in the term "the contracts" are also all modifications made under the terms and conditions of these contracts and purchase orders between the Government and the Transferee, on or after the effective date of this Agreement.

(2) As of ____________, 20___, the Transferor has transferred to the Transferee all the assets of the Transferor by virtue of a __________ [ insert term descriptive of the legal transaction involved ] between the Transferor and the Transferee.

(3) The Transferee has acquired all the assets of the Transferor by virtue of the above transfer.

(4) The Transferee has assumed all obligations and liabilities of the Transferor under the contracts by virtue of the above transfer.

(5) The Transferee is in a position to fully perform all obligations that may exist under the contracts.

(6) It is consistent with the Government’s interest to recognize the Transferee as the successor party to the contracts.

(7) Evidence of the above transfer has been filed with the Government. [ When a change of name is also involved; e.g.,a prior or concurrent change of the Transferee’s name, an appropriate statement shall be inserted (see example in paragraph(8) of this Agreement) ].

(8) A certificate dated _________, 20___, signed by the Secretary of State of ___________ [ insert State ], to the effect that the corporate name of EFG Corporation was changed to XYZ Corporation on _____________, 20__, has been filed with the Government.

(b) In consideration of these facts, the parties agree that by this Agreement-

(1) The Transferor confirms the transfer to the Transferee, and waives any claims and rights against the Government that it now has or may have in the future in connection with the contracts.

(2) The Transferee agrees to be bound by and to perform each contract in accordance with the conditions contained in the contracts. The Transferee also assumes all obligations and liabilities of, and all claims against, the Transferor under the contracts as if the Transferee were the original party to the contracts.

(3) The Transferee ratifies all previous actions taken by the Transferor with respect to the contracts, with the same force and effect as if the action had been taken by the Transferee.

(4) The Government recognizes the Transferee as the Transferor’s successor in interest in and to the contracts. The Transferee by this Agreement becomes entitled to all rights, titles, and interests of the Transferor in and to the contracts as if the Transferee were the original party to the contracts. Following the effective date of this Agreement, the term "Contractor," as used in the contracts, shall refer to the Transferee.

(5) Except as expressly provided in this Agreement, nothing in it shall be construed as a waiver of any rights of the Government against the Transferor.

(6) All payments and reimbursements previously made by the Government to the Transferor, and all other previous actions taken by the Government under the contracts, shall be considered to have discharged those parts of the Government’s obligations under the contracts. All payments and reimbursements made by the Government after the date of this Agreement in the name of or to the Transferor shall have the same force and effect as if made to the Transferee, and shall constitute a complete discharge of the Government’s obligations under the contracts, to the extent of the amounts paid or reimbursed.

(7) The Transferor and the Transferee agree that the Government is not obligated to pay or reimburse either of them for, or otherwise give effect to, any costs, taxes, or other expenses, or any related increases, directly or indirectly arising out of or resulting from the transfer or this Agreement, other than those that the Government in the absence of this transfer or Agreement would have been obligated to pay or reimburse under the terms of the contracts.

(8) The Transferor guarantees payment of all liabilities and the performance of all obligations that the Transferee-

(i) Assumes under this Agreement; or

(ii) May undertake in the future should these contracts be modified under their terms and conditions. The Transferor waives notice of, and consents to, any such future modifications.

(9) The contracts shall remain in full force and effect, except as modified by this Agreement. Each party has executed this Agreement as of the day and year first above written.

United States of America,

By _______________________________________________

Title _____________________________________________

ABC Corporation,

[ Corporate Seal ]

XYZ Corporation,

Certificate

I, ___________, certify that I am the Secretary of ABC Corporation, that ________________, who signed this Agreement for this corporation, was then _____________ of this corporation; and that this Agreement was duly signed for and on behalf of this corporation by authority of its governing body and within the scope of its corporate powers. Witness my hand and the seal of this corporation this day of __________________ 20 ___.

I, ____________, certify that I am the Secretary of XYZ Corporation, that ________________, who signed this Agreement for this corporation, was then _____________ of this corporation; and that this Agreement was duly signed for and on behalf of this corporation by authority of its governing body and within the scope of its corporate powers. Witness my hand and the seal of this corporation this day of ____________________20___.

42.1205 Agreement to recognize contractor’s change of name.

(a) If only a change of the contractor’s name is involved and the Government’s and contractor’s rights and obligations remain unaffected, the parties shall execute an agreement to reflect the name change. The contractor shall forward to the responsible contracting officer three signed copies of the Change-of-Name Agreement , and one copy each of the following:

(1) The document effecting the name change, authenticated by a proper official of the State having jurisdiction.

(2) The opinion of the contractor’s legal counsel stating that the change of name was properly effected under applicable law and showing the effective date.

(3) A list of all affected contracts and purchase orders remaining unsettled between the contractor and the Government, showing for each the contract number and type, and name and address of the contracting office . The contracting officer may request the total dollar value as amended and the remaining unpaid balance for each contract.

(b) The following suggested format for an agreement may be adapted for specific cases:

Change-of-Name Agreement

The ABC Corporation (Contractor), a corporation duly organized and existing under the laws of __________ [ insert State ], and the United States of America (Government), enter into this Agreement as of __________ [ insert date when the change of name became effective under applicable State law ].

(1) The Government, represented by various Contracting Officers of the _______________ [ insert name(s) of agency(ies) ], has entered into certain contracts and purchase orders with the XYZ Corporation, namely: ____________ [ insert contract or purchase order identifications ]; [ or delete "namely" and insert "as shown in the attached list marked "Exhibit A" and incorporated in this Agreement by reference." ]. The term "the contracts," as used in this Agreement, means the above contracts and purchase orders and all other contracts and purchase orders , including all modifications, made by the Government and the Contractor before the effective date of this Agreement (whether or not performance and payment have been completed and releases executed if the Government or the Contractor has any remaining rights, duties, or obligations under these contracts and purchase orders ).

(2) The XYZ Corporation, by an amendment to its certificate of incorporation, dated _________ 20___, has changed its corporate name to ABC Corporation.

(3) This amendment accomplishes a change of corporate name only and all rights and obligations of the Government and of the Contractor under the contracts are unaffected by this change.

(4) Documentary evidence of this change of corporate name has been filed with the Government.

(b) In consideration of these facts, the parties agree that-

(1) The contracts covered by this Agreement are amended by substituting the name "ABC Corporation" for the name "XYZ Corporation" wherever it appears in the contracts; and

(2) Each party has executed this Agreement as of the day and year first above written.

I, ___________, certify that I am the Secretary of ABC Corporation; that ___________, who signed this Agreement for this corporation, was then _____________ of this corporation; and that this Agreement was duly signed for and on behalf of this corporation by authority of its governing body and within the scope of its corporate powers. Witness my hand and the seal of this corporation this ________ day of ____________ 20___.

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Documents you need to buy or sell a business

The documents you need to buy or sell a business depend on the structure (discussed here ) and complexity of the deal as well as its specific terms. However, in virtually all cases, there will be a principal agreement governing the transaction. This will be a merger agreement for a merger, a stock purchase agreement for a stock purchase and, you guessed it, an asset purchase agreement for an asset purchase. These documents may have slightly different names at times. For example, a merger agreement may be called an agreement and plan of merger or a stock purchase agreement may be referred to as a securities purchase agreement or a purchase and sale agreement. Contracts for transactions involving the sale of stock and assets may simply be called purchase agreements.  By and large, these slight variances in nomenclature don’t reflect any substantive distinctions.

Below, I’ll describe the purpose of each of these principal transaction agreements. After that, I’ll also very briefly introduce you to several other common mergers and acquisitions (M&A) transaction documents, including:

Confidentiality Agreements

Letters of intent, exclusivity agreements, disclosure schedules, hsr filings, third party consents, legal opinions, stock certificates, bills of sale, assignment and assumption agreements.

• Escrow Agreements and
• Transition Services Agreements .

There are dozens of other documents I could mention, including various Securities and Exchange Commission (SEC) filings for public deals, other federal and state regulatory filings, board resolutions, proxy statements, closing certificates, non-competition agreements, shareholder representative agreements, financial adviser engagement letters, fairness opinions, exchange agent agreements, employment agreements, compensation plans, real estate documents, lien releases, financing documentation and more, but I’ll save those for later posts.   I’ll also spend more time discussing each of the following documents in subsequent posts.

Principal Transaction Agreements

Merger agreements.

Merger agreements provide that one company will merge with and into another company by operation of law, thereby effecting a change in control over one of the companies. They are the primary transaction agreement governing mergers  and are frequently employed in public M&A deals . Among other things, these agreements typically:

• address the cancellation of the target company’s shares and their conversion into the right to receive the purchase price from the buyer,
• include mechanics for the tendering of cancelled shares and the payment of the purchase price to target company shareholders,
• require the filing of one or more certificates of merger (or equivalent documents) with the state or states whose law governs the constituent companies,
• provide for appraisal (dissenters’) rights,
• contain representations and warranties from each party to the other as to its ability to consummate the transaction and, in the case of the target, its businesses,
• contain covenants ( i.e. , binding promises) requiring the parties to make any necessary regulatory filings, obtain third party consents, secure permits, solicit shareholder approval and cooperate prior to and (except in public deals) after closing,
• allow the parties to terminate the agreement under specified circumstances, such as the occurrence of an event that has a material adverse effect on the target company,
• include conditions to closing and
• in private M&A deals, provide for the parties to indemnify each other for losses resulting from breaches of the agreement.

In public transactions, merger agreements also contain deal protections (no-shops, break-up fees and other devices intended to make termination of the agreement less likely) and securities law compliance provisions. Want to buy a merger agreement?

Stock Purchase Agreements

Like merger agreements, stock purchase agreements, or SPAs, are the primary transaction documents governing a deal. However, SPAs take the place of merger agreements in stock purchase transactions where ownership of stock changes hands. No merger occurs. Among other things, SPAs typically:

• provide for the transfer of stock, including, when applicable, physical delivery of stock certificates to the buyer, in return for payment of the purchase price, and
• contain representations and warranties from each party to the other as to its ability to consummate the transaction and, in the case of the sellers, the target company’s businesses and the shares being transferred.

Otherwise, SPAs are very similar to merger agreements. Note, though, that they are almost never used in connection with an acquisition of 100% of a public company’s stock. Want to buy a stock purchase agreement?

Asset Purchase Agreements

Asset purchase agreements, or APAs, are the primary transaction documents governing sales of assets . However, rather than provide for a merger or transfer of shares, they establish the terms and conditions by which assets and liabilities will be conveyed by a seller to a buyer. APAs are very similar to stock purchase agreements, except for:

• specific enumeration of the assets and liabilities being transferred,
• providing for use of necessary legal instruments to transfer ownership, such as bills of sale (for personal property), assignment and assumption agreements (for contracts and permits), intellectual property assignments, real property transfer documents and so on,
• some differences in representations and warranties of the seller, such as a representation that the acquired assets are sufficient to run the acquired business, and
• provisions governing the treatment of assets that are used in both the business of the seller and the acquired business (shared assets).

Want to buy an asset purchase agreement?

Documents Signed Before Principal Transaction Agreements

M&A confidentiality agreements are usually entered into at commencement of discussions between the parties to ensure the fact that discussions are occurring, the terms being discussed and information about the parties’ respective businesses will be maintained in confidence. I’ve written a lengthy post about confidentiality agreements in M&A deals here . Want to buy a confidentiality agreement?

Letters of intent, or LOIs, are short, largely non-binding documents signed by the parties to prospective M&A transactions that lay out the general framework for the transaction, including the target, the purchase price (or a purchase price range), transaction structure, contingencies ( e.g. , whether there’s a buyer financing contingency), covenants and the terms of any indemnification.

Although LOIs are intended to be non-binding, they are employed by M&A parties as a tool to simplify the negotiation process by crystallizing the most material issues early in their interaction. By investing a bit of extra effort in hammering out an LOI at the commencement of discussions, parties can reduce the risk that they will needlessly expend even more resources through a full-scale due diligence, negotiation and definitive document drafting process only to discover that there is no deal to be had.

Read more about letters of intent here .

Exclusivity agreements are very short (1-2 page) agreements through which a seller agrees not to begin or continue attempting to sell the target company to a third party for a period of time (typically, 15-60 days). They are generally sought by buyers who do not wish to compete or continue competing with third parties for a deal. As one might expect, sellers agree to exclusivity reluctantly, as doing so may reduce their ability to maximize value from the transaction by inducing competing bids. However, without exclusivity, many buyers will refuse to invest the time and resources in conducting fulsome due diligence and negotiating an LOI or definitive transaction agreements. Want to buy an exclusivity agreement?

Documents Effective Upon Signing Principal Transaction Agreement

Disclosure schedules, sometimes called disclosure letters, aren’t separate agreements or other independently operative instruments. Rather, they are attachments to, and made a part of, the deal’s principal transaction agreement (merger agreement, SPA or APA). Their primary purpose is to provide disclosure about one of the parties to the transaction and to qualify or limit representations and warranties, and they are frequently quite lengthy, sometimes even exceeding 100 pages.

A given deal may have two disclosure schedules, one for the buyer and one for the seller or target. However, a seller or target disclosure schedule is far more common than one for the buyer. Buyer disclosure schedules are usually only needed in deals where the seller requires a significant amount of information about the buyer, such as, for example, when the purchase price is paid with buyer stock.

The disclosure provided by disclosure schedules is usually tied to specific representations and warranties contained in the principal transaction agreement. For example, a representation relating to material contracts of the target company may include a reference to a list of such contracts in the seller disclosure schedule. Alternatively, the information contained in the disclosure schedule may qualify or limit the scope of corresponding representations and warranties. For example, a representation may provide that there are no existing legal proceedings involving the target,  except as set forth in the seller disclosure schedule .

Documents Needed Between Signing and Closing

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to M&A transactions that meet certain criteria to file a Premerger Notification and Report Form, commonly called an HSR filing, with the Federal Trade Commission (FTC) before they may consummate the transaction. These filings are designed to provide information to the FTC and U.S. Department of Justice (DOJ) for the purpose of determining whether the proposed transaction may have an anti-competitive effect on any relevant markets.  If the FTC and DOJ have no concerns, then the parties may close the transaction 30 days after making the HSR filing (or earlier of the authorities grant early termination of the waiting period).

Many target companies are subject to agreements with third parties that restrict their ability to consummate a deal. These may include leases, loan agreements, customer contracts and more. Whether they may impede the transaction depends on the specific terms of the agreement, the law governing the agreement and the structure of the transaction.  For example, while a direct assignment of a contract may be prohibited, which would interfere with an asset sale transaction, a merger or change in control ( i.e. , a sale of stock) of the target may not be so restricted.

When contractual restrictions cannot be avoided through creative deal structuring, M&A parties must obtain written consents from third parties who have rights that would be triggered by a deal. These consents are simple instruments that must be tailored to the specific terms of the subject agreement, and they are rarely controversial in form. However, securing the required consents may at times prove difficult and time-consuming, as some counterparties may use their leverage to extract value from the requesting party.

Documents Delivered At or Effective After Closing

Occasionally, a seller’s attorneys may be called upon to render a written legal opinion for the buyer to be delivered at closing. These opinions are intended to provide additional assurance to the buyer that certain legal matters are as they have been described by the seller in its representations and warranties. A typical opinion might cover the following matters:

• the target was duly formed,
• the target is in good standing in relevant states,
• the target’s capital structure ( i.e. , shares outstanding),
• the transaction and transaction agreements will not violate the target’s charter and other organizational documents or material contracts,
• there is no litigation pending or threatened against the target and
• any issuance of stock or other securities in the transaction complies with federal and state securities laws.

While commonplace in the past, buyers only rarely request seller legal opinions today on account of the legal fees that must be incurred to obtain them as well as the buyer’s ability to confirm independently many or all of the matters that would be addressed by the opinion.

Stock certificates are the physical embodiment of an ownership interest in a corporation. If the target is a limited liability company or partnership, equivalent membership, unit or partnership certificates may exist. These must be signed by the seller or sellers and delivered to the buyer at closing of a stock purchase transaction. In merger transactions, they are deemed cancelled and converted into the right to receive the merger consideration upon delivery to the buyer or paying agent.

Bills of sale are short instruments that actually transfer ownership of personal property from the seller to the buyer. They are only used in asset purchase transactions because personal property transfers to the buyer automatically in a stock purchase or merger. They are typically attached as exhibits to APAs, and the seller agrees to deliver a duly executed bill of sale to the buyer at closing.

In very simple asset sales, parties may forego an APA and instead prepare a long-form bill of sale that includes basic representations and warranties and, possibly, covenants. Want to buy a bill of sale?

Assignment and assumption agreements are analogous to bills of sale, except they effect the transfer of contracts, permits and similar assets by the seller to the buyer in an asset purchase transaction. It’s important to note that the word “assumption” in the title of these instruments refers to the buyer’s assumption of liabilities associated with the assigned assets.

As with bills of sale, it is possible, though uncommon, for parties to simple M&A transactions to rely solely on a long-form assignment and assumption agreement containing representations and warranties rather than a full APA. Want to buy an assignment and assumption agreement?

Escrow Agreements

In private M&A transactions, sellers usually agree to indemnify ( i.e. , hold harmless and protect) buyers and their affiliates and representatives from any losses they incur as a result of breaches of the seller’s representations, warranties and covenants contained in the principal transaction agreement. Should such an indemnification obligation arise post-closing, the buyer or other indemnified party would become an unsecured creditor of the seller or sellers, and it may be difficult for the indemnified party to collect on this debt.

To mitigate this risk, buyers frequently demand, and sellers usually agree, that a portion of the purchase price will be deposited with a trustworthy third party agent to hold for a period of time after closing for the purpose of remitting funds to indemnified parties if they become entitled to recover damages from the seller or sellers. These escrow arrangements are governed by escrow agreements signed by the parties to the M&A transaction as well as the third party escrow agent. Aside from establishing the mechanics for distributing the funds, escrow agreements also set forth the terms of the escrow agent’s engagement, including its rights, obligations and fees. Want to buy an escrow agreement?

Transition Services Agreements

Many M&A transactions involve the sale of only part of the operations of a larger enterprise. Thus, the extraction of the target business may be disruptive to that business, as it loses enterprise-wide services and support it had previously enjoyed. This may include, among other things, the loss of IT and telecommunications services, finance and accounting services, participation in employee benefits plans, legal and compliance support, equipment maintenance, logistics support, supply chain management and access to favorable vendor pricing and other terms.

To ameliorate the challenges of transitioning an acquired business to new ownership, necessary support may be provided by the seller to the target company and buyer for an agreed-upon period of time post-closing. Such arrangements are commonly reflected in a transition services agreement, which identifies the subject services, allows for adding or modifying services at the request of the target or buyer, establishes a standard for performance by the seller, sets fees for the services (which are usually, but not always, at below-market rates), allocates potential liability arising from the provision of services and provides for a term for each service to be provided. Want to buy a transition services agreement?

*               *               *

Erik Lopez is the M&A lawyer responsible for this blog. Feel free to contact Erik at [email protected] or +1-214-601-1887 .

Partner at Jasso Lopez PLLC

Erik is an M&A lawyer with over 23 years of domestic and cross-border, public and private M&A experience. He has successfully closed hundreds of deals totaling tens of billions of dollars in value for a global client-base. He is a graduate of the University of Chicago and New York University School of Law. You can reach Erik at [email protected].

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Acquisition policy library and resources

The Acquisition Policy Library contains active Acquisition Letters and Class Deviations issued by GSA's Senior Procurement Executive. The GSA Acquisition Policy Division within the Office of Government-wide Policy maintains and updates this library.

Documents on this site are provided in PDF format following Section 508 standards as much as possible. If you experience difficulty accessing any resources or content on this site, please contact the GSA Acquisition Policy Division by email at [email protected] . We will work diligently to provide you with an accessible format.

Videos    |    Documents    |    Buy America Waivers

• GSA Implementation of Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors , held October 13, 2021
• GSA’s Implementation of Section 889 of the FY 2019 National Defense Authorization Act (NDAA) , held October 28, 2020
• National Defense Authorization Act: Section 889 , Held July 30, 2020

FAR and GSAM Cases

• Open GSAM and GSAR Cases [PDF - 148 KB]
• A listing of open FAR cases is maintained by Defense Pricing and Contracting

Cyber Supply Chain Risk Management

• GSA Enterprise-Level Cyber-Supply Chain Risk Management (C-SCRM) Strategic Plan [PDF - 435 KB]
• GSA Form 7700 , Secure Software Development Attestation
• AA-2024-01 [PDF - 229 KB] , Prohibition on a ByteDance Covered Application “TikTok” Interim FAR Rule Guidance
• Industry Message [PDF - 408 KB] about Acquisition Alert AA-2024-02,  Workforce Guidance on FAR Case 2020-011, Implementation of Federal Acquisition Supply Chain Security Act (FASCSA) Orders (Interim Rule).
• Section 889 FAQs [PDF - 237 KB]
• Section 889 Decision Tree -- Offeror [PDF - 55 KB]
• Section 889 Decision Tree -- Current Contractor [PDF - 51 KB]
• Section 889 Provisions and Clauses Tables [PDF - 73 KB]
• Section 889 Informational Flyer [PDF - 468 KB]
• Cyber Supply Chain Risk Management Criteria for Section 889 Part A [PDF - 80 KB]
• Cyber Supply Chain Risk Management Criteria for Section 889 Part B [PDF - 115 KB]

FAR Case 2021-008, Amendments to the FAR Buy American Act Requirements

• Made in America FAR Rule Flyer [PDF - 425 KB]
• Decision tree for item-by-item evaluation [PDF - 106 KB]
• Decision tree for group evaluation [PDF - 109 KB]
• SPE-2023-03 [PDF - 236 KB] , GSA GS-1102 Modernization Project for Contracting Professionals 
• SPE-2022-03 [PDF - 892 KB] ,  Appropriate Internal Interactions in the Acquisition Process
• Acquisition Alert AA-2023-05 [PDF - 648 KB] , Update on Contracting with 8(a) Businesses
• Acquisition Alert AA-2022-02 [PDF - 665 KB] , Guidance on Addressing Inflation in GSA Contracts
• Acquisition Alert AA-2021-01 [PDF - 330 KB] , Contractor Self-Assessments
• GSA-VA Assignment of Function [PDF - 249 KB]
• SPE-2024-01 [PDF - 126 KB] , Increasing Opportunities and Advocating For People with Disabilities
• A copy of GSA’s Section 801 NDAA certification can be found on the Defense Pricing and Contracting website.

Buy America Waivers

The  Build America, Buy America Act , enacted as part of the Infrastructure Investment and Jobs Act on November 15, 2021, requires that any infrastructure project receiving federal funding must source iron, steel, manufactured products, and construction materials from the United States. Per section 70914(c) of the Act, GSA may issue a waiver if it finds that:

• Applying the Buy America preference would be inconsistent with the public interest (a “public interest waiver”).
• Types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality (a “nonavailability waiver”).
• The inclusion of iron, steel, manufactured products, or construction materials produced in the United States will increase the cost of the overall project by more than 25 percent (an “unreasonable cost waiver”).

Any waiver GSA intends to issue will be posted to this website for public review and comment for 15 days.

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What Is an Assignment of Contract?

Assignment of Contract Explained

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Assignment of contract allows one person to assign, or transfer, their rights, obligations, or property to another. An assignment of contract clause is often included in contracts to give either party the opportunity to transfer their part of the contract to someone else in the future. Many assignment clauses require that both parties agree to the assignment.

Learn more about assignment of contract and how it works.

What Is Assignment of Contract?

Assignment of contract means the contract and the property, rights, or obligations within it can be assigned to another party. An assignment of contract clause can typically be found in a business contract. This type of clause is common in contracts with suppliers or vendors and in intellectual property (patent, trademark , and copyright) agreements.

How Does Assignment of Contract Work?

An assignment may be made to anyone, but it is typically made to a subsidiary or a successor. A subsidiary is a business owned by another business, while a successor is the business that follows a sale, acquisition, or merger.

Let’s suppose Ken owns a lawn mowing service and he has a contract with a real estate firm to mow at each of their offices every week in the summer. The contract includes an assignment clause, so when Ken goes out of business, he assigns the contract to his sister-in-law Karrie, who also owns a lawn mowing service.

Before you try to assign something in a contract, check the contract to make sure it's allowed, and notify the other party in the contract.

Assignment usually is included in a specific clause in a contract. It typically includes transfer of both accountability and responsibility to another party, but liability usually remains with the assignor (the person doing the assigning) unless there is language to the contrary.

What Does Assignment of Contract Cover?

Generally, just about anything of value in a contract can be assigned, unless there is a specific law or public policy disallowing the assignment.

Rights and obligations of specific people can’t be assigned because special skills and abilities can’t be transferred. This is called specific performance.   For example, Billy Joel wouldn't be able to transfer or assign a contract to perform at Madison Square Garden to someone else—they wouldn't have his special abilities.

Assignments won’t stand up in court if the assignment significantly changes the terms of the contract. For example, if Karrie’s business is tree trimming, not lawn mowing, the contract can’t be assigned to her.

Assigning Intellectual Property

Intellectual property (such as copyrights, patents, and trademarks) has value, and these assets are often assigned. The U.S. Patent and Trademark Office (USPTO) says patents are personal property and that patent rights can be assigned. Trademarks, too, can be assigned. The assignment must be registered with the USPTO's Electronic Trademark Assignment System (ETAS) .  

The U.S. Copyright Office doesn't keep a database of copyright assignments, but they will record the document if you follow their procedure.

Alternatives to Assignment of Contract

There are other types of transfers that may be functional alternatives to assignment.

Licensing is an agreement whereby one party leases the rights to use a piece of property (for example, intellectual property) from another. For instance, a business that owns a patent may license another company to make products using that patent.  

Delegation permits someone else to act on your behalf. For example, Ken’s lawn service might delegate Karrie to do mowing for him without assigning the entire contract to her. Ken would still receive the payment and control the work.

Do I Need an Assignment of Contract?

Assignment of contract can be a useful clause to include in a business agreement. The most common cases of assignment of contract in a business situation are:

• Assignment of a trademark, copyright, or patent
• Assignments to a successor company in the case of the sale of the business
• Assignment in a contract with a supplier or customer
• Assignment in an employment contract or work for hire agreement

Before you sign a contract, look to see if there is an assignment clause, and get the advice of an attorney if you want to assign something in a contract.

Key Takeaways

• Assignment of contract is the ability to transfer rights, property, or obligations to another.
• Assignment of contract is a clause often found in business contracts.
• A party may assign a contract to another party if the contract permits it and no law forbids it.

Legal Information Institute. " Assignment ." Accessed Jan. 2, 2021.

Legal Information Institute. " Specific Performance ." Accessed Jan. 2, 2021.

U.S. Patent and Trademark Office. " 301 Ownership/Assignability of Patents and Applications [R-10.2019] ." Accessed Jan. 2, 2021.

Licensing International. " What is Licensing ." Accessed Jan. 2, 2021.

Collateral Assignment of Acquisition Agreements | Practical Law

Collateral Assignment of Acquisition Agreements

Practical law standard document w-006-7145  (approx. 24 pages).

Part Number: 2842

Justice Acquisition Regulation

Part 2842 - contract administration and audit services.

Authority: 28 U.S.C. 510; 40 U.S.C. 486(c); 28 CFR 0.75(j) and 0.76(j).

Source: 87 FR 47118, Aug. 2, 2022, unless otherwise noted.

      Subpart 2842.6 - Corporate Administrative Contracting Officer

           2842.602 Assignment and location.

      Subpart 2842.7 - Indirect Cost Rates

           2842.703 General.

           2842.703-2 Certificate of indirect costs.

Subpart 2842.6 - Corporate Administrative Contracting Officer

2842.602 assignment and location..

The HCA or designee is the agency head for the purposes of FAR 42.602(a).

Subpart 2842.7 - Indirect Cost Rates

2842.703 general., 2842.703-2 certificate of indirect costs..

The HCA or designee is the agency head for the purposes of FAR 42.703-2(b).

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ACQUISITION.GOV

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The attached Acquisition Letter has been issued to provide guidance on the Department's policy governing reimbursement of costs associated with contractor domestic extended personnel assignments.

PF2013-07 Contractor Domestic Extended Personnel Assignments

PF2013-07a.pdf