When entering into contracts with third parties, it is important to carefully consider any terms that could prevent your UK company from freely operating and selling its business. These business restrictions can be imposed by many different types of contract provisions, but some common examples include exclusivity commitments, non-compete commitments, most favoured pricing commitments and granting a counterparty the first right to acquire your company. Business restrictions may appear in a counterparty's template contracts (including in the fine print) or be expressly proposed during contract negotiations, so it is important to keep on the lookout for these terms when reviewing and negotiating commercial deals.
In addition to contractually prohibiting your company from operating in certain ways, business restrictions may be closely scrutinised during due diligence in connection with fundraises, M&A deals and IPOs, so it is important to thoughtfully assess whether it is appropriate for your company to agree to a business restriction in a particular deal. Some key issues to consider when making that assessment may include:
If you have any questions about business restrictions in your contracts, you should speak with your UK legal advisors.