A sale of a business non-compete agreement is a legal contract between the buyer and seller of a business. Typically, the seller agrees not to build or collaborate with a competing business within the same geographic area for a set period of time. A business sale non-compete agreement may stand alone or exist as a non-compete clause in the sale documents.
Sale of a business non-compete agreements are generally legal in most jurisdictions as long as they are reasonable in terms of their scope and duration.
What Makes It Enforceable?
US Law treats non-competes as generally enforceable; however, the enforceability when selling a business depends on several factors, including:
State or Jurisdiction
Statutes and case law in some states limit or refuse to enforce unnecessarily restrictive non-compete agreements. Agreements or clauses that oppose state laws are generally unenforceable. Before you sign, consult a business attorney to learn what terms are enforceable in your jurisdiction.
Geographic Limitations
Non-competes usually bar the seller from opening, operating, collaborating with, or affiliating with a similar business in the same geographic area. Geographic limitations should focus on the location where the seller previously did business.
Period
Time limits are a common consideration when establishing the validity of a non-compete agreement. Establish a reasonable time frame based on the type of business. A court may not enforce an unreasonably long period.
Protectable Interests
Business sale non-compete agreements tend to focus on potential competition between the buyer and seller. Even if some terms, such as those concerning geographic area and time periods, are considered unenforceable, certain protectable interests may remain, including:
- Trade secrets
- Confidential information
- Patent lists
- Design, development, research, and specifications
- Customer details
- Business forecasts, sales, and marketing
- Third-party contract details
- Proprietary business information
These interests are not always included in the non-compete clause or agreement. Many business purchase agreements incorporate separate clauses for confidentiality and intellectual property management.
How to Write a Non-Compete in a Business Sale
To establish clear boundaries, begin with a fillable sale of business non-compete agreement form, then address the following considerations.
Step 1 – Parties Involved
Enter the buyer and seller details, including company name, representative name, address, phone number, and other contact information.
Step 2 – Non-Solicitation
This section prevents the seller from soliciting customers, employees, contractors, or consultants from the purchased business. This ensures that the seller does not take critical resources that could compromise the business.
Step 3 – Non-Compete Clause
Outline the actions that could be considered competing with the buyer’s business. This section usually prohibits the seller from opening, working in, consulting with, or otherwise affiliating with a competing business in a specific geographic area for a set period of time.
Step 4 – Injunctive Relief
If a party to the agreement violates the terms, the other party may seek injunctive relief. Injunctive relief would force the seller to stop any activities that break the agreement. Injunctive relief is typically a temporary measure ordered by a judge during litigation.
Step 5 – Method of Dispute Resolution
This provision outlines the method of dispute resolution in the event of a disagreement. Methods may include arbitration, mediation, or litigation.
Step 6 – Amendment of Agreement
Indicate that amendments to the agreement are only valid if made in writing and agreed to by both parties.
Step 7 – Purchase of Release
You may specify a specific value or percentage in exchange for releasing either party from the non-compete at one point. You can even specify the procedures that should be followed to request such a release.
Alternatively, you can enter a general clause that allows you to negotiate release terms.
Sale of a Business Non-Compete Agreement Sample
Download a template in PDF or Word format.
Frequently Asked Questions
Can a sale of a business non-compete agreement be negotiated?
Yes. You can negotiate the terms of a sale of a business non-compete agreement. The goal is to reach a goodwill agreement that benefits both parties.
What happens if a sale of a business non-compete agreement is breached
If one of the parties violates a business sale non-compete agreement, the other party may pursue legal action consistent with the agreement terms and state laws. Violating a non-compete agreement may lead to consequences such as monetary damages, injunctions, or other remedies as determined by the court according to the agreement and applicable law.
