Every agreement for the purchase and sale of a business worth its salt contains restrictions on the seller’s ability to compete and solicit customers and employees after the closing of the transaction. Few agreements contain similar restrictions on the purchaser. Should they? Suppose that the purchase price for the business is seller financed, that is, paid to the seller over time, and/or subject to an earn-out, which is dependent upon the performance of the business. In this scenario, it makes sense for the seller to insist that the purchaser agree to a non-compete. Without that restriction, the purchaser could open a competing business, filtering funds from the purchased business to the competing business and thereby hampering the purchased business from being able to make payment of the purchase price to the seller. Certainly, this risk can be mitigated by personal guarantees and collateral securing the unpaid purchase price. But the purchaser non-compete is another good way for the seller to protect itself.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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