Buyers have much to consider when purchasing a business. Depending on the circumstances, a new owner might have concerns that the seller may give the business to them, only to set up shop a few streets down. However, buyers can enforce a noncompete agreement, which can significantly reduce those risks. That way, new owners can better preserve their business’s value, assets, goodwill and intellectual property from harm.
How do noncompete clauses work?
A noncompete clause can certify that previous owners won’t open a new venture within a specific timeframe or geographic location. However, the length of both can vary depending on state laws. It can also prohibit them or their former employees from giving away intellectual property to competitors.
What should buyers put in their noncompete agreement?
When establishing the terms of the agreement, owners should be as specific as possible. It’s typically best to avoid relying on casual assurance, as it may give the seller some leeway to act against the buyer’s wishes. To avoid this, buyers may want to include the following in their agreement:
- The types of activities the seller may not engage in.
- A provision prohibiting the seller from using their name or likeliness if they plan on opening a similar venture.
- A provision prohibiting the seller from using any proprietary assets, including recipes, patents, trademarks and other resources that make the business profitable.
- A provision prohibiting the seller from providing consulting, advising or coaching services to any competitors.
- Consequences for violating any provisions stated in the noncompete.
Buyers deserve to protect their newly purchased business
New owners can face many challenges when taking over another person’s business. If former owners or employees violate the terms stated in one’s noncompete agreement, they could face stringent penalties, including legal fees, fines and other damages.