In reply to: Other than a non-compete imposed on the business owner posted by mwalsh
The company isn't really worth that much, it's just the person who has that worth. That person could give the company some value by binding themselves to employment for a term of years with specified damages in the event of breach.
If a manager or owner is capable of replicating the entire operation that easily, I'm unclear why the company should be privileged over the manager or owner.
It's usually (as others have pointed out) because the owner sells his interest in the company to someone, which strikes me as a pretty good reason.
is not all that valuable unless the company has the owner in an employment contract -- that contract is where the negotiation should be, and contemplation of liquidated damages seems appropriate in these cases moreso than a prohibition against competing whenever the owner actually departs.
There are plenty of circumstances where a company is perfectly viable following an owner's (or co-owner's) departure, provided the former owner himself isn't out there competing.
And in the owner context, the problem isn't keeping him from departing (who, exactly, is the owner going to make that promise to whilst he's still the owner), it's keeping him from changing his mind after he voluntarily decides to depart.
for the business and structure the buyout differently, rather than shackle with a noncompete. It can achieve the same ends via different means.
Owner buyouts in small businesses aren't usually adhesion contracts drafted by the buyer.
Edit: And it's wishful thinking to assume that structured payouts will generate the same protections as a restrictive covenant in every case. If the seller concludes he can undersell his old firm, it could certainly be economically rational for him to get back in the game and forgo the later installments. Whether he can do that consistently with tort law and the Lanham Act depends on the circumstances, but contracts allowed parties to avoid a lot of indeterminability and uncertainty on those questions.
by this on multiple occasions, and my spouse has been on both sides of it.
I am not understanding why a buyer of a small business might not be able to structure the buyout in such a way to protect their interests rather than including a non-compete clause. If you care to explain it in simple terms so that I can follow along I will be happy to learn. That's not snark, I really would be happy to be enlightened.
employee to stick around. The non-compete is used to shackle them to the business.
What company resources were used to build that clientele? A business should be able, at some level, to protect their investment.
I'd have no issue with a company requiring a non-compete when they've paid for school or other training.
to exploit the rule to their advantage, rather than simply protecting their investment. They can and should protect their investment via other means. Non-competes are unnecessary. I understand circumstances listed where they might be of more use, but I have zero trust that they will not be abused. Businesses can and should find other ways to achieve their ends. If that costs them, I am unsympathetic. Their actions led to this outcome.