Why You Need Legal Counsel for Drafting Contracts in Business Sales or Acquisitions

Why You Need Legal Counsel for Drafting Contracts in Business Sales or AcquisitionsEngaging in the purchase or sale of a business is a significant decision with the potential for substantial rewards if executed at the right time. A critical aspect to consider is the presence of legally binding contracts that impact the businesses involved in the transaction. Overlooking these contracts can result in significant time and resource expenditures. This underscores the importance of seeking legal counsel when navigating business transactions. One pertinent category of contracts to pay close attention to is non-compete agreements.

The Importance of Non-Compete Agreements

Non-compete agreements typically originate in the early stages of business associations. For example, when a company hires a new employee, a non-compete clause may be part of the employment contract. By entering into such agreements, employees generally agree not to engage in competitive activities against their employer both during and after their employment for a specified period. This prohibition extends to activities such as divulging trade secrets or providing other proprietary information to competitors.

Enforcement Parameters of Non-Compete Agreements

It’s important to note that non-compete agreements cannot be overly restrictive. For instance, they cannot indefinitely prevent former employees from joining similar businesses. Typically, a time limit ranging from six months to two years is considered reasonable and enforceable.

Additionally, non-compete agreements with a broad geographical scope, such as preventing former employees from working in multiple states, are more challenging to enforce. Balancing the protection of the business’s interests with avoiding undue restrictions on the employment opportunities of the workforce is crucial.

The Crucial Role of Legal Counsel

For sellers of businesses, ensuring the enforceability of non-compete agreements is essential. At the same time, buyers need to ensure that the operational flexibility of their newly acquired team is not overly restricted. The best way to address these considerations is through the engagement of legal counsel. A proficient legal team can uncover existing contractual arrangements, explain their stipulations, and potentially facilitate their modification.

Our firm assists business owners navigating prospective acquisitions or sales. We invite you to reach out for a consultation, where we can provide further insights into these matters.

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