Buying a Business? Don’t Forget a Noncompete

July 19th, 2012 by JBWK

Employers typically think of noncompete agreements for their current or prospective employees. But if you’re considering buying a business (whether from a current partner or competitor, or from a retiring owner), don’t forget they should have noncompetes, too. You don’t want to buy out a direct competitor only to have him set up shop down the street.

The good news is that courts are fairly lenient in these situations. They allow broader noncompete terms in a sale-of-business situation than they do in typical employee noncompete agreements. So while a five-year noncompete for an employee is almost certainly overbroad, a court is much more likely to enforce a five-year restriction after a buyout.

Always seek good legal advice when drafting these, but know that you have much more latitude in preventing the seller from competing against you.

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