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Can my new business’s former owner compete against me?

As you negotiate the purchase of your ideal business, prepare yourself for the possibility that the seller may move to another location in Kentucky and open a new, nearly identical company in direct competition with you. 

You can protect your new interests from the damage a former insider might do by including noncompete clauses in the sale contract. Ultimately, the effectiveness of such agreements depends on enforceability. Here are three considerations that could help your noncompete agreement stand up in court: 

  1. Include specifics

Generally speaking, a judge may be more likely to enforce a noncompete agreement with clearly outlined parameters. According to the Huston Chronicle, you could include restrictions such as: 

  • The definition of a competing business 
  • Trade secrets or proprietary components specific to your operation 
  • The territory in which a competitor might interfere with profitability 
  • A time period which allows you to establish yourself in the company 

You may also consider language that prevents the previous owner from consulting with competing companies. 

  1. Be reasonable

The former owner of your new business likely has tremendous skill in that specific industry and not much experience anywhere else. This is why it could be vital to your noncompete clause’s success that the restrictions are sufficient to protect your interests but go no further than necessary. 

Be reasonable when determining the area and time period covered by the agreement, as well as the definition of competing practices. If you give the seller enough leeway to pursue a relevant career outside of the company, you may reduce the chance that he or she will consider breaching the agreement. 

  1. Encourage compliance

You may also wish to incorporate specific clauses that discourage the seller from quietly undermining the noncompete agreement. These might include your freedom to notify other companies within the outlined territory that the noncompete agreement exists. This could be crucial, especially if you believe it likely that the former owner may find employment with one of your existing competitors. Your noncompete agreement could also impose damages, fines and require compensation for legal costs in case of a breach or renegotiation.