By: Contributing Attorney, Robert T. Sawyer, II
You’ve built a successful business and now it’s time to implement the exit strategy. Your buyer will likely ask you to sign a non-compete in order to protect the investment he or she is making. So here are 3 key things to keep in mind when negotiating the terms of the non-compete:
- Courts are becoming increasingly hostile towards non-compete agreements, especially if the agreement covers a geographic area that is well beyond where the business operates. This doesn’t mean you should rely on the courts to invalidate the agreement – that would require litigation, and litigation is expensive. The agreement should realistically reflect the location of the customer base, and it should generally last less than 2 years; ideally 1 year.
- Have a lawyer review (or draft) the agreement. This is a powerful document. A lawyer on the front end will decrease the chances of litigation on the back end.
- Consider using a non-solicitation in addition to (or in place of) the non-compete. A non-solicitation prevents you from contacting current clients. The new owner is able to build on the good will he’s purchasing, and you can build a new business without having to move hours away.
What To Do Next:
Not every lawyer works with businesses every day. Using the legal process strategically is much more than just handling routine filings, it’s understanding the company’s strategic plans, product roadmap, and competitive landscape before choosing a legal strategy.
Bobby Sawyer provides a Business Development Strategy Session before every representation to ensure clients understand how the law can help them shape their business before they commit to a strategy.
If I’m not the right attorney for the company, you have my commitment that I’ll point you in the right direction. Just call my office at 704.266.0727 to schedule.