Prohibit a business seller from competing in a similar area of work to protect intellectual property and customer lists or vendor relationships.
Updated August 9, 2024
Written by Ioana Gagiuc | Reviewed by Brooke Davis
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.
US Law treats non-competes for business sale as generally enforceable; however, the enforceability when selling a business depends on several factors, including:
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.
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. Overly broad geographic limitations may be challenged in court.
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.
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:
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.
To establish clear boundaries, begin with a fillable sale of business non-compete agreement form, then address the following considerations.
Enter the buyer and seller details, including company name, representative name, address, phone number, and other contact information.
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.
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.
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.
This provision outlines the method of dispute resolution in the event of a disagreement. Methods may include arbitration, mediation, or litigation.
Indicate that amendments to the agreement are only valid if made in writing and agreed to by both parties.
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.
Download a template in PDF or Word format.
