Do You Need a Non-Compete Agreement If You Sell Your Business?

If you're selling your business, you may be doing so because you wish to open another company. If you want to protect your ability to open a new venture in the same industry or area, you'll need to be aware of non-compete agreements.

Non-compete agreements can essentially prevent you from opening a business in the same industry within a specific geographic area for a specific period of time. Many business owners who purchase a business insist on a non-compete because they don't want serial entrepreneurs using their larger business experience to compete in the same market.

Do I Need a Non-Compete to Sell My Business?

In many cases, you do not need a non-compete to legally sell your business. In fact, not all states acknowledge non-compete agreements. Even when they are allowed, making a non-compete agreement enforceable can be a challenge. Judges and courts can toss out a non-compete agreement if they feel it’s too restrictive or unreasonable.

Even though there are some challenges with non-competes, many business buyers insist on them, so even if you don’t need a non-compete to sell your business, buyers may refuse to work with you unless you’re willing to sign this type of contract. If you cannot negotiate, you may wish to reconsider the terms of the non-compete. Perhaps the business buyer will agree to a shorter term, or will reduce the geography in which you cannot open a new business.

It’s always advisable to review non-compete agreements in the sale of a business and to have an attorney review these agreements. If a seller insists on a non-compete, make sure you’re being compensated adequately. You will not be able to use your business experience to make more money in your field for a specific period of time, so you’ll want to make sure you’re not financially held back.

Even if you plan on retiring or have no plans to open a new business, looking at non-compete agreements closely is important. Your financial situation can change and you may decide to open a new venture after all. If you do, your best chance of success may be in your current industry, so having an agreement preventing you from working in that field can be very restrictive.

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