| The Non-Compete in a Business Transaction |
 We often hear buyers inquire about the protections offered by a non-compete agreement. The issue that concerns them, of course, is "what prevents the buyer from going out and starting the same business across the street from me?" And it is a good point: in many small businesses, the vast majority of value is not in assets, but rather in intangibles such as the customers, location, etc. There are a number of constructs that can help you protect your interests in the business you are buying, but they all center around a well structured non-compete agreement. Issues to Address in a Non-Compete: Geographic Reach of Non-Compete. To be effective, a non-compete agreement should address the geographic reach it is to encompass. For many small business transactions, a range of 100 miles is sufficient. For single-branch retail operations, an even smaller range might be appropriate- perhaps as little as 25 miles. For companies that have a wider territory, the exclusion might be the entire country. Industry Restrictions. It is not reasonable to restrict an individual from working in the future. As such, a typical non-compete will prevent a seller from working in the same industry for a length of time. Again, the actual period will be dependent on the situation. Bear in mind that there will always be exceptions. For instance, when a seller owns a portfolio of 15 gas stations and is only selling off 1 property, it would not be reasonable to restrict him from owning the other 14.
Length of Time. The non-compete should always include a time period. The most typical length of time is in the 2-5 year range. Again, seek to tailor this to the specific situation.
Is it Enforceable? |
