Buying a Texas business already in operation is an effective way to gain market share quickly. An existing customer base and immediate cash flow may be preferable to a startup atmosphere. Drafting a noncompete agreement can help you entice current employees to remain with the company, helping you retain key clients. We often help clients draft enforceable noncompete agreements and assess potential violations.
According to the North Texas Legal News, noncompete agreements related to the sale of a business are standard. Certain types of restrictive covenants can help ensure the courts find the agreement enforceable.
Generic terms often make enforcing a noncompete impossible. If your new business operates locally, the court may not find prohibiting the seller from competing anywhere in the country, or even the other side of the state, reasonable. Indicate specific geographic areas restricting the sellers’ potential competition.
You may also draft an agreement that prohibits specific activities that could harm the company. This frequently occurs if there is the possibility that the seller could go to work for an existing competitor in the same area.
If the sellers stay on with the company as employees, you might want two separate agreements. One regarding the sale of the business and an employment agreement. The purchase agreement begins from the closing date of the deal, and the employment agreement starts from the date the employment ends. It is not unusual for the sellers to miss the industry in which they were successful, whether they stayed on after the sale or not. If the noncompete is too vague, the sellers may open a similar business to the one they sold, defeating the purpose of the purchase. Meeting the requirements for an enforceable noncompete agreement can save money and headaches down the road.