Non-Competition Agreements When Selling a Business

Non-competition agreements are legal documents that employers commonly require employees to sign, where the employee promises not to compete against the employer for a specified period of time, even after the employer/employee relationship has ended. It usually prevents the employee for going to work for a competitor during that specified time period. However, non-compete agreements are also used in the sale of a business, where the seller agrees not to compete with the buyer.

Non-competition agreements are sometimes referred to as "Covenants Not To Compete." The purpose of these agreements is to prevent the seller from opening a competing business in a specified geographical area, possibly for a specified period of time.

Non-competition agreements usually contain the type of business in question, the seller's promise not to compete directly or indirectly with the buyer, the geographical area the agreement covers, the specified time period of the agreement, and other rights that the buyer has, as well as other limitations that are placed on the seller.

Since this document affects you as the seller, more than it affects the buyer, it is important that you understand the terms of the agreement, and negotiate with the buyer for a non-compete agreement that you can live with. Since the agreement will state what your limitations are, as the seller, you should make sure that it also states what your rights are.

The geographical and time limitations specified in the agreement must be reasonable, or it will not stand up in a court of law. However, if it is reasonable, the courts will uphold the agreements validity. Therefore, it is in your best interest that you give a great amount of consideration to the terms of the non-competition agreement before signing it, making sure that you will still be able to abide by the terms for the entire period of time that the agreement covers.

It is important that the terms are very clear. You are promising not to compete directly or indirectly. Work with the buyer to determine exactly what is meant by directly and indirectly to avoid a dispute later on. You should work with your attorney when negotiating the terms of the non-competition agreement.

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