Non-compete
The seller's agreement not to compete with the sold business for a defined period within a defined area, usually accompanied by non-solicitation covenants.
Also called: Restrictive covenant · Non-competition agreement
A buyer paying for goodwill needs assurance that the person who built it will not rebuild it next door. Non-competes in a sale context are therefore standard, and they are treated very differently from employment non-competes: courts across most jurisdictions are considerably more willing to enforce a covenant given as part of the sale of a business, because the seller was paid for it.
The scope has three dimensions — duration, geography, and activity — and each should be read against your actual plans. A covenant that prevents you working anywhere in the industry, anywhere in the country, for five years is a different thing from one restricted to the specific services and the region the business actually serves. Non-solicitation of employees and customers usually runs alongside, and is often the clause with the most practical bite.
There is a tax dimension in asset sales: consideration allocated to a personal non-compete covenant is frequently taxed as ordinary income, which is why the allocation is negotiated alongside the covenant rather than after it.
Where sellers get caught
- Agreeing scope broader than the business you sold, which can foreclose unrelated future work.
- Not carving out passive investments or an existing unrelated venture.
- Ignoring the allocation to the covenant and its tax treatment.
Common questions
How long is a typical sale non-compete?
Periods in the range of two to five years are common in business sales, with enforceability depending on jurisdiction and on whether the scope is reasonable relative to what was sold.
Are non-competes enforceable?
In the sale-of-business context they are generally treated much more favourably than employment non-competes, but rules vary significantly by jurisdiction. This is a question for a lawyer where you actually live and operate.
Related terms
Purchase price allocation
The agreed split of an asset-sale price across asset classes, which drives the tax outcome for both sides.
Transition period
The time after closing during which the seller stays involved to transfer relationships, knowledge, and operating control to the buyer.
Owner dependence
The extent to which a business's revenue, relationships, or operations depend on the departing owner personally.
Asset sale
A transaction in which the buyer purchases specified assets and assumes specified liabilities, rather than buying the legal entity itself.
Guides that use this term
Where non-compete comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.