As the owner or shareholder of a company, it’s important to protect your business interests. One way to ensure this is through a non-compete clause in your shareholders agreement. Non-compete clauses are designed to prevent shareholders from competing with each other or the company they own for a specified period of time. Here’s everything you need to know about non-compete clauses in shareholders agreements:

What is a non-compete clause?

A non-compete clause is a provision in a shareholders agreement that prohibits shareholders from starting or working for a competing business for a certain period of time. This clause is designed to protect the interests of the company and its shareholders by preventing the shareholders from using their knowledge and expertise to compete with the company.

Why is a non-compete clause important?

A non-compete clause is important for several reasons. First, it protects the company’s trade secrets and confidential information from being used by a shareholder who leaves the company and starts a competing business. Second, it prevents a former shareholder from taking clients or customers away from the company. Finally, it helps preserve the value of the company by preventing shareholders from starting a competing business.

What should be included in a non-compete clause?

When drafting a non-compete clause, it’s important to be specific about what actions are prohibited and for how long. The clause should clearly state what type of activities the shareholder cannot engage in, such as starting a competing business or working for a competitor. The clause should also specify the duration of the non-compete agreement, which is typically 1-2 years after the shareholder leaves the company.

What are the limitations of non-compete clauses?

Although non-compete clauses are valuable for protecting the interests of the company, there are limitations to what they can do. In some states, non-compete clauses are unenforceable or have limitations on their enforceability. Additionally, the non-compete must be reasonable in scope and duration. If it is too broad or lasts for too long, it may not be enforceable.

In conclusion, a non-compete clause is an important provision in a shareholders agreement. It helps protect the company and its shareholders from competition and preserves the value of the business. It is important to carefully draft the clause to ensure that it is enforceable and reasonable in scope and duration. As a professional, it’s important to understand the legal implications of non-compete clauses in shareholders agreements and ensure that they are accurately and effectively communicated to readers.