Glossary
Non-compete
A restriction in the sale agreement preventing the seller from setting up or joining a competing business, or from approaching the clients and employees of the business sold, for a defined period and scope after completion.
In plain English
Buyers pay for goodwill, and goodwill would be worthless if the founders could leave and take the clients with them. Non-compete and non-solicitation covenants protect against that. They are standard in agency transactions and are usually enforceable where they are reasonable in duration and scope.
Sellers should expect them and should think about what they want to do after the sale before agreeing the terms.
Why it matters
The length and breadth of restrictive covenants affect what founders can do next. They deserve careful attention, particularly where founders expect to start or join another business.
What to watch for
- Negotiate duration, geography and the definition of competing activity.
- Consider carve-outs for activities you intend to pursue.
- Enforceability depends on reasonableness and on jurisdiction; take legal advice.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.