A standstill agreement may be used as a form of defence to a hostile takeover, when a target company acquires a promise from an unfriendly bidder to limit the amount of stock that the bidder buys or holds in the target company.
By obtaining the promise from the prospective acquirer, the target company gains more time to build up other takeover defenses.
Common shareholders tend to dislike standstill agreements because they limit their potential returns from a takeover.
The agreement increases the parties' incentives to invest in negotiations and due diligence, respecting their own potential deal.
Standstill agreements are also used to suspend the usual limitation period for bringing a claim to court.