Non-Compete After Business Sale: Rights and Obligations

After the sale often comes the question: Can the old founder now start a new business and take customers from the sold business?

The buyer wants to prevent this – so he demands a non-compete clause. That's fair: The buyer pays for the customers and relationships. He doesn't want the old founder to come and take them all away.

But a non-compete also limits the founder's freedom. That's why negotiating this clause is important.

Under German law a non-compete for shareholders/managers after leaving is not automatically valid. It must be recorded in the shareholder agreement or for trade craftsmen in the shareholder agreement.

Important: The non-compete must not be broader than necessary. It must be limited in time, space and content.

Example valid: "The seller commits to not operate in the core segment for 3 years within a 50km radius."

Example too broad: "The seller may not operate anywhere, anytime in any industry." – Courts probably wouldn't enforce this.

Duration: 2-5 years are typical. 1-2 years is too short (gives the buyer little protection). 5+ years is often too long (limits the founder too much).

Scope: Can the founder operate in a different market segment? Example: You sold an electrical installation business. Can you now start an electrical wholesale business? That's technically "electrical" – but a different business model.

Territory: Local (50km radius), regional (state) or national? This depends on how regional the business is. A local trade business: 50km makes sense. A multi-regional B2B company: 500km or national.

A non-compete is a restriction on freedom. That's why compensation is fair.

This can be: A higher purchase price (because the non-compete is valuable to the buyer). Or a separate payment for the non-compete (e.g. 100,000 EUR for 3 years).

Rule of thumb: For each year of non-compete you should demand 3-5% of the purchase price.

Tactic 1: Reduce the duration. Instead of 5 years: 3 years. That's still protection for the buyer, but less restriction for you.

Tactic 2: End the restriction with sufficient distance. "After 2 years the founder can operate within a 200km radius." This gives buyer protection AND flexibility.

Tactic 3: Carve-outs. Certain business areas are exempt from the restriction. "The founder can't do new customer acquisition – but serving existing customers is ok." That makes sense if the founder has good relationships with certain customers.

Tactic 4: International expansion. "The non-compete is valid in Germany – but not in Austria or Switzerland." This allows growth without violation.

If you break the non-compete, the buyer can sue you. The penalties can be substantial: Damages up to 3x EBITDA, injunction, costs.

This is not to be taken lightly. Negotiate the non-compete carefully, but respect it then. It's not just a piece of paper – it's legally binding.

With VALENTYR VOS Assessment and structured preparation you negotiate non-competes on equal footing. You know: Which clauses are fair? What do I deserve for the restriction? Where are my red lines?

With data and standards you can negotiate difficult clauses more cleverly. This is the future of fair, transparent sale negotiations.