Purchasing a new business or selling an existing one are major decisions. However, if the time is right, both moves can be very rewarding.
One thing you’ll need to consider is the existence of any binding legal contracts that affect whatever businesses are involved in your transaction. Overlooking these could end up costing you time and money. This is just one reason why it’s so important to seek legal guidance when completing a business transaction. One notable type of contract to keep in mind is non-compete agreements. You’ll want to pay special attention to these potentially binding contracts or clauses when looking to purchase or sell an ongoing concern.
The function of non-compete agreements
Generally, non-compete agreements are implemented in the beginning of business relationships. For example, when a company takes on a new employee, a non-compete clause may form part of their employment contract. When an employee signs such an agreement, they typically agree not to compete with its employer both during and after their employment for a specified period of time. This means that they cannot help their employer’s competitors, such as handing over its trade secrets or any other information that competitors may find useful.
Enforcing non-compete agreements
Non-compete agreements cannot be unlimited in scope. For instance, they cannot prevent former employees from working for similar companies for an indefinite period of time. Usually, a limitation period between 6 months and 2 years is considered reasonable.
Additionally, non-compete agreements that include a broad geographic location, such as preventing a former employee from working across numerous states, are more difficult to enforce. A balance must be struck between protecting the interests of the business and not unreasonably restricting the employment activities of the worker.
Why legal guidance is crucial
If you are selling a company, you will need to know that your non-compete agreements will be enforced. At the same time, if you have just purchased a company, you’ll want to make sure that your new team isn’t overly restricted in the activities they can carry out. The best way to do this is to seek legal guidance. An experienced legal team can uncover any existing contractual agreements and clarify (and potentially modify) the terms of those agreements.
We help business owners who are contemplating a purchase or sale. Feel free to contact us for a consultation to learn more.