Legal Blog

M & A Nuggets: Non-Compete

noncompeteIn transactions involving the purchase and sale of a business, the purchaser almost always insists that the seller and the seller’s owner agree not to compete with the purchaser.  The non-compete is a crucial component of the deal.  A substantial amount of attention is devoted to the negotiation of the specific activity that the seller will be prohibited from engaging in, and the time frame and geographic area that will apply to the non-compete.  A non-compete agreement that adequately covers these areas protects the purchaser while it owns the business.   Many purchasers, however, purchase a business with the end goal of selling it for a profit.  How does the purchaser protect the non-compete in the future, when the purchaser sells?  The future is often overlooked when the purchase agreement is negotiated.  It is crucial that the purchaser be able to transfer, or assign, the non-compete agreement to the next purchaser.  Whether this can be done varies from state to state.  Some states do not even allow the assignment of non-compete agreements.  Some states allow the assignment, but only if the purchase agreement specifically states that the non-compete provisions can be assigned.  No matter what state the transaction takes place in, a clause should always be added to the non-compete section of the agreement specifically stating that the purchaser can transfer all of its rights under the non-compete without restriction.  This way, the purchaser may be able to offer its future purchaser the comfort that the original seller will not be able to compete during the balance of the non-compete term.


Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress 


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