Can one buy a California business with a non-compete obligation?

Asked almost 2 years ago - Los Angeles, CA

I heard non-compete clauses are illegal in CA. If a party wishes to purchase a shop from a sole proprietor, would it still be possible to include at least a limited noncompete clause to not open another shop in the same town?

Attorney answers (5)

  1. James Carl Eschen III

    Contributor Level 16

    13

    Lawyers agree

    Answered . Yes. The California rule against noncompetition agreements has an exception for the sale of a business. The agreement must still be reasonable in place and time; the same town is probably a reasonable place.

    I would have a lawyer review the noncompetition agreement as well as every other aspect of the sale.

  2. Christopher Palmer

    Pro

    Contributor Level 12

    13

    Lawyers agree

    Answered . I agree with Mr. Eschen and would extend on his point to say that if you are purchasing a business you should have an attorney involved for more than just this particular issue. There are a lot a hidden traps involved in the purchasing of an on-going business. Even taking over a small, inconspicuous business might be walking into a mountain of headaches that the previous own has failed to address (i.e., zoning, taxes, licensing, on-going vendor contracts, etc.). If you are willing to spend money to purchase a business, spend the money to do it right. If you don't it might cost you much more in the future. Good luck.

    The comments by this author to questions posted on Avvo are designed to foster a general understanding of what... more
  3. Michael Charles Doland

    Contributor Level 20

    11

    Lawyers agree

    Answered . My colleagues are correct that non-competes are legal in connection with the sale of a business so that the limitations on time and geography are reasonable (e.g. not the whole world and forever). Having a lawyer and CPA involved in this transaction may cost "a dollar" today but will save you "ten dollars" in the years to come. Good luck with the venture.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
  4. Dana Howard Shultz

    Contributor Level 20

    9

    Lawyers agree

    Answered . My colleagues' answers are somewhat correct but somewhat misleading.

    If the seller were the owner of a legal entity (partnership, LLC or corporation), I would agree with their answers, which refer to the sale of a business. However, you expressly stated that the seller is a sole proprietor. In that situation, the non-compete provision is enforceable only if the individual sells "the goodwill of a business" (please see the post at the link below, which includes a link to the applicable statute).

    Accordingly, it is especially important, if you are contemplating such a transaction, that you have a lawyer prepare, and an accountant review, the purchase-and-sale agreement to ensure that it expressly and appropriately identifies and values the goodwill being sold.

    This information does not constitute legal advice and does not establish an attorney-client relationship.
  5. Matthew Corin Bradford

    Contributor Level 5

    6

    Lawyers agree

    Answered . It is possible to buy a business in California that includes a non-compete clause, but the non-complete clause must be narrow and the restrictions must be related to protecting the goodwill of the business. I strongly suggest that you contact a lawyer to help you with this language. It is easy to get this language wrong and then your non-compete will be useless.

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