Non-Competition Agreements in Business Sale and Purchase Contracts
Non-competition agreements are most commonly encountered in the context of employment. Individuals are most likely to encounter a non-competition agreement when signing a contract to start a new job. Some business owners use non-competition agreements in their employment contracts to protect their business interests. When an employee signs a non-competition agreement, the employee will generally agree to not work for a competitor, to not work in a given geographical area, and to avoid certain business activities for a specific frame of time. Or, an employee may be asked to agree to not start a competing business and to not solicit the customers of the business for a given timeframe. However, there are other situations where a non-competition agreement may be beneficial.
When buying a business, a buyer may also want to consider the importance of having a non-competition agreement in the sale and purchase contract. Why? When purchasing a business, a buyer is usually buying so much more than just equipment, property, and branding. Often a business comes along with hard-won ties the former owner may have made with the community. It comes along with client lists or a customer base on which the business relies for its income. When buying a business, the purchaser may be in a vulnerable position because if the seller goes on to open a competing business in the same neighborhood, the community may patronize that new business rather than the business the seller just sold. Having a non-competition agreement in your business sale and purchase contract can protect you as a buyer. These clauses may stipulate that the seller is not permitted to start a competing business in your neighborhood, may state that the seller is not permitted to solicit their former business’s clients, and is not permitted to work for a competitor in your area. One way that a seller can also protect their interests is by considering whether the business included non-competition clauses when the employees were hired. This could also prevent the seller from establishing a new business, hiring all his or her old employees, and competing directly with you.
Buying a business in Orlando, Florida can be a complex process. A buyer should always take the time to do his or her due diligence, which might include ensuring that a non-competition agreement is included in the sale and purchase contract. Thinking of buying a business in Orlando, Florida? Legal Counsel, P.A. is a business law firm in Orlando, Florida that may be able to help you. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.
What Should Be Included in a Non-Compete Agreement for it to Be Valid?
In order for a non-compete agreement to be enforceable, it must be reasonable in scope. What does this mean? You cannot just tell a former employee or seller of a business that they cannot work in their field forever. According to Florida law, in order for a non-compete agreement to be enforceable, it must include reasonable provisions for a timeframe in which the non-compete agreement will be enforceable (generally a couple of years), a geographical area (like a community, part of a city, or city), and area of business activities (you can’t just tell someone they can never work or do business again in a contract and expect the contract to be enforceable). Basically, the agreement must be limited in scope and be very clear about the restrictions in place. In general, an agreement that clearly outlines a limited amount of time for the contract to be enforceable, clearly outlines a geographical region where the contract is enforceable, and clearly delineates the business activities that are prohibited might have a better possibility of being enforceable, than a non-compete agreement that is too general in scope.
While non-compete agreements can be enforceable, they can face intense scrutiny by judges who also don’t want businesses creating agreements that limit free trade or commerce in an area. So, you may need to show why the non-compete agreement was reasonable and necessary to protect your business interests or competitive advantage. Have questions about whether a non-compete agreement in a business sale or purchase contract can protect your interests? Depending on your situation, it might be a good idea to include a non-compete agreement in your business sale or purchase contract, but this agreement must be properly written to be enforceable. Legal Counsel, P.A. is a business law firm that helps clients in Orlando, Florida with various aspects of purchasing or selling a business. Thinking of buying a business and have questions about how you might be able to protect your rights? Legal Counsel, P.A. is an Orlando, Florida business law firm that works closely with clients who are in the process of selling or buying a business in Florida. Reach out to our law firm today for help. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.
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