Non-Compete Agreements are generally disfavored by the Courts. However, they have been granted protections in Texas under the Texas Non-Compete Act. Although fully recognized in Texas, they must generally be very limited in scope and reasonable under the circumstances.
If you are purchasing a company, one of the most important sections can be the non-compete. If you purchase a business from a seller who is well known in the community without including a non-compete, you may find yourself competing against that seller again in the future if they decide to re-enter the same industry again. The seller and their business has presumably built up goodwill and name recognition. That is probably part of what drew you to want to buy the business in the first place. Now, think of potentially having to compete with that person you just paid to purchase their company and they steal all their business back by coming back into the market shortly after the sale. That would be terrible and that has happened in the past.
The following list identifies common points for buyers and sellers that our firm emphasizes during both the negotiation of a non compete agreement as part of the sale of a business and litigation that may arise out of a non compete agreement after the sale. These are all based on the law in the State of Texas and how these specific points have been treated in the past. We call them “pitfalls”. Don’t fall into one.
Purchase and Sale Agreements are required when a person or entity acquires another business or assets of another business. These sorts of documents are common place and if you are in the market to purchase an existing entity with ongoing operations, this is a document that you should become quite familiar with before actually signing on the line. It is also a complex document that should be drafted by an attorney. Many people that I have spoken to over the years have not wanted to hire an attorney because of the additional cost. However, when you are spending hundreds of thousands and even millions of dollars on purchasing a new company or business assets, saving a little bit of money on attorney’s fees is not worth it if you mess the whole thing up and it costs you big time in the future.
Here is a basic run down of a Purchase and Sale Agreement. It is a lot like a Residential Real Estate Contract, but with some additional terms and sections that make it a much more complex document that a Realtor or broker, absent a corresponding law license, should not be drafting from scratch on their own.