How Business Contracts Work When a Company is Sold to Another Business

By April 24, 2019Small Business

The question of how contracts work when a company is sold will usually come up in one of two scenarios: Either you are the seller, or you’ve signed a contract and the other party is selling. In both situations, it’s essential to know your rights and the details regarding enforceability. The underlying legal concepts are far from simple, so you should trust a Las Vegas employment law attorney to provide customized advice based upon your specific circumstances. Still, you may find it helpful to understand some of the factors that impact your contractual relationship.

Terms in the Original Contract

Your first source of information on how contracts work in the event of a company sale is the contract itself. If you included basic, essential terms in the written agreement, there may be provisions regarding:

  • Assignment of contracts, in which you cover transfers of contractual rights or obligations to another party; and/or,
  • Novation, which is a substitution of one party for another.

These provisions will either state that assignment and novation are allowable – or that they’re prohibited unless both parties agree.

Nevada Statutory Law

For some contracts, state statute governs what happens when the seller of a company is a party. The Nevada Uniform Commercial Code (UCC) applies to various commercial transactions, including the sale of goods, leases, negotiable instruments, and many others. If your agreement is subject to the UCC. The section on delegation of performance and assignment of rights states that:

  • A party may perform the contract through a delegate, such as the purchaser of the company that’s a party;
  • A party can assign rights and responsibilities for agreements covered by the UCC; and,
  • Parties can prohibit assignments and delegations.

Still, there are many other provisions within the UCC that make the issue far more complicated. You should consult with a Las Vegas business law lawyer regarding contracts and transactions that are covered by the UCC.

Litigation Regarding an Existing Contract

Based upon the applicable laws or contractual terms, you may need to take legal action to protect your rights as a party to the agreement. There are a few options, but the details depend on your goals:

  • If you’re the party that doesn’t want the other to sell the business, you may be able sue for specific performance or breach of contract. This may be the case if you don’t believe an assignment or novation will result the same or similar contractual relationship.
  • If you’re the seller and want to get out of the contract, you could file a lawsuit for rescission. This would put both parties back into the same position they were before entering into the agreement.

Discuss Contractual Matters with a Las Vegas Business Law Attorney

If you need assistance with enforcement of a contract, please contact the H1 Law Group to set up a consultation. Retaining a lawyer is essential if you need to initiate litigation, or if you’re defending your company against a lawsuit by the other party. Our team represents clients in Clark County and throughout Southern Nevada, and we’re happy to help with your case.