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July 19, 2022

What Happens to My Contract If a Business Closes or Gets Bought?

What Happens to My Contract If a Business Closes or Gets Bought?

Over the last few years, a LOT of things have happened. We continue to deal with the ups and downs and it seems like things just keep happening…


All the proverbial dust is still settling from all of that uncertainty — and as of June 2022, the U.S. stock market hit a bear market — meaning many businesses’ projected values were trending  down. All of this means that nothing is certain and we don’t have much control over external factors.


We do have control over one thing, though: Having a contract.


The bottom line is: Things happen. Businesses aren’t just affected byglobal pandemics or recessions, either. There are other things that can affect your contract. Clients might change their business name, companies change owners, businesses go  out of business, and headquarters move out of the country. 


Any number of things can occur that might affect your contract, your work, and how you get paid. We’re going to walk you through how to review your contract in terms of shifts happening with their clients — so you’re prepared for anything.

What’s in a name change? 

Juliet was wrong about this one, sorry to say. There’s actually  a  lot  to a name when we’re referring to contracts. 


While some contracts may plan for the possibility of such a change, others might not, so the wording of your contract is important to pay attention to in this situation. Possible wording to pay attention to are things like:


  • “The business is now known as…”
  • “______ corporation/by any other name moving forward…” 
  • “By whichever name the party may be titled” 

These are all good signs of what you want to see in your contract and exist to protect you in the event of a company changing their name for any number of reasons. 


You can also sign a  name-change agreementwithin your contract, which is separate from the main contract but built-in to acknowledge a possible change of name. These agreements include everything that they legally need to in order to protect both parties from liability, and act as an extension of the rights to your contract. 


Keep it simple: You can also just send your client an updated contract with their new name and the same terms. Easy! 

Change in ownership

When a client business is bought, sold, or “merged” with another, you will want to check whether or not part of the terms of sale means the assignment of a new contract with the business's new owner. In the buy/sell process,  substitutions (or novations) may be allowed if both parties are in agreement. 


You may also find that you can renegotiate the terms of your contract, or that you don’t want to work with the new owner or managing team. Make sure to read your contract and understand how it transfers to new ownership so you aren’t in breach of your agreement.

Novation

Novation is a fancy word for substitution. So, in your contract, a novation would mean the substitution of one party for another (not the kind with balloons, unfortunately). Broken down into ABCs, it looks something like this: 


  • Party A (contract holder) and Party B (contract signer, you) enter into a contract agreement. 
  • Party A has a crisis – enter Party C – Party C takes over for Party A. 
  • Party A and B agree to a  novation  and sign a  novation agreement  that states that Party C is going to be substituted for Party A on Party B’s contract 
  • This agreement protects Party A from being liable and also forfeits its rights against Party B.
  • They all live happily ever after

While a novation can be part of the original contract, it may also need to be signed when the novation agreement is actually taking place. A real example of this would be in the event of a business changing its name; the novation agreement would be needed to form a new contract with the newly named business.

Bankruptcy 

When you find out a client’s business has to file bankruptcy, it is VERY IMPORTANT that you stop contact immediately. If you make contact to get paid up, you can actually be sued. The best thing to do from here is to review the bankruptcy filing notice (ask for this as proof from the client or point of contact) to see what the deadline is. From there, you can file a claim to report what you’re owed. 


For the next 120 days, your client will work on a repayment plan that might include your payment. You can also follow the client’s PACER (Public Access Court Electronic Records) account, which eliminates the need to work with an attorney. Of course, if you’re owed alot of money, working with an attorney might be your best bet.


This is why it’s important to evaluate your payments and invoices with your contracts. Especially if you work in a high-risk industry, like tech start-ups, it might help to get  payment upfront or work with deposits.

Protect your bootie, cutie 

Either way the cookie crumbles (and if you’re dealing with anything like we’ve covered here, the cookies are  definitely crumbling), you want to make sure that you:


  1. Have  a rock-solid contract that covers things like payments, terms, scope, etc.

  2. If your client requiresyou to sign their contract, read it carefully, thoughtfully, and with the full scope of what can, might, and will happen. 

  3. Ask for changes! It’s not inappropriate to ask for more specific terms and information, especially if you're provided a contract that confuses you.

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