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2 Tips For Making Sure Your Non-compete Agreement Is Enforceable When Purchasing A Business

Law Blog

Business owners that want to move on from their business are always looking for new owners who are willing to purchase it. Purchasing a new business can provide a number of new opportunities, however, it can also create a number of obstacles. One of the main issues is finding yourself in competition with the old owners after purchasing the business. In order to avoid this, a non-compete agreement should be drafted. A non-compete agreement is designed to ensure that you do not have to compete with the old owners directly for existing customers. This applies to situations where the old owners decide to start the same exact business in the same area. While a non-compete agreement may be beneficial, it can become unenforceable if it is not drafted correctly. Fortunately, there are a few tips that you can use to limit how restricting your non-compete agreement is.

Draw the Geographic Limitation As Specific as Possible

A geographic limitation in a non-compete agreement is designed to prevent the old business owner from competing in the same geographical area as you. The size of the geographical limitation depends on what type of business you own. For example, if your business designs wedding dresses, then the non-compete may state a larger geographical limitation since many brides are willing to drive a great distance to find the perfect wedding dress. However, if you make the geographical limitation too broad, then the court may think that you are trying to prevent the former business owner from providing for themselves financially. This will get the non-compete agreement thrown out.  

Avoid Using an Unreasonable Time Limit

A non-compete agreement usually states the amount of time in which the non-compete is expected to be valid. This can vary from a few months to a few years. It generally depends on the complexity of the business that is being purchased. If your non-compete agreement ends up in court, the court will not look at a non-compete with an extended time frame favorably. Many states believe that this hinders a person's ability to work and make a living. It is a good idea to not allow the time limit on a non-compete agreement to go past a few years.    

A non-compete agreement can be a great decision for your business if it is done correctly. However, many states have laws that place restrictions on the enforceability of a non-compete agreement. Therefore, use these tips to make sure that your non-compete agreement can hold up in court. For further assistance, contact a business law professional, such as Robert L Lilley Co Lpa.


8 April 2016