You’ve found the right business to buy. The numbers look good, the customer base is solid, and you’re ready to move forward with the acquisition. But here’s something you can’t overlook: what’s stopping the seller from opening up shop across the street six months after closing?
Nothing, unless you’ve got a non-compete agreement in place.
Why Buyers Need These Protections
When you buy a business, you’re not just purchasing equipment and inventory. You’re paying for years of customer relationships, established reputation, and the goodwill the seller built. Without proper restrictions, that seller could use everything they know to compete directly against you. A non-compete agreement creates a legal barrier. It prevents the former owner from:
- Starting a competing business in the same market
- Working for a direct competitor
- Soliciting the business’s existing customers
- Recruiting key employees away from the company
These restrictions give you breathing room. You need time to build relationships with customers, learn the operation, and make the business truly yours.
How Illinois Courts View These Agreements
Illinois will enforce non-compete agreements in business sales, but only when they’re reasonable. Courts look at three main factors: scope, geography, and duration. The scope defines what competitive activity is actually prohibited. A Chicago business purchase lawyer can help draft language that protects your interests without going too far.
Geography matters too. The restricted area needs to match where the business actually operates. If you’re buying a neighborhood bakery in Lincoln Park, you can’t enforce a non-compete covering the entire state. The geographic restriction should reflect the actual market area where the seller’s knowledge could damage your business. Time limits are equally important. Most Illinois courts find two to three years reasonable for business sales. Pushing for five years? That’s often asking for trouble.
Why These Differ From Employment Contracts
Courts treat non-competes in business purchases very differently from employment-based restrictions. The difference comes down to consideration. When you sell a business, you’re receiving a substantial payment. Often, part of the purchase price is specifically allocated to the non-compete clause itself. You negotiated this. You agreed to it. You got paid for it. When someone’s selling a business for hundreds of thousands or millions of dollars, courts recognize there’s real fairness in enforcing the restrictions they voluntarily agreed to.
Beyond The Basic Competition Ban
Smart non-compete agreements do more than just prevent direct competition. Customer non-solicitation stops the seller from reaching out to the business’s customers and pulling them away. This provision is often easier to enforce than a broad competition ban.
Employee non-solicitation prevents the seller from recruiting your trained staff members. These employees know your operations, your customers, and your pricing. Confidentiality provisions protect proprietary information. Customer lists, pricing strategies, supplier relationships, operational details. All of it needs protection beyond what trade secret law provides. Kravets Law Group structures these provisions to work together, creating comprehensive protection for your investment.
Getting The Price Allocation Right
How you allocate the purchase price matters more than most buyers realize. You should designate a specific portion of the purchase price to the non-compete agreement itself. This creates clear, documented consideration for the restriction. That makes enforcement easier if you end up in court. There are also tax advantages. Payments for non-compete agreements are typically deductible as ordinary business expenses rather than capital costs that you depreciate over years.
What Happens When Sellers Violate The Agreement
Some sellers don’t honor their commitments. They convince themselves the agreement doesn’t really apply, or they can’t resist the temptation to compete. When that happens, you’ve got remedies. Courts can issue injunctions stopping the competitive activity immediately. You can also recover monetary damages for lost business and customers. Your agreement should spell out these remedies clearly. Include provisions for attorney’s fees too. That makes enforcement more practical when violations occur.
The Drafting Makes All The Difference
You can’t just download a template and call it done. Non-compete agreements need careful drafting tailored to your specific situation. Go too broad, and courts might throw out the entire restriction. That leaves you with no protection at all. A Chicago business purchase lawyer who understands business acquisitions can draft agreements that balance protection with enforceability. The agreement should fit the specific business you’re buying, the market conditions you’re entering, and the transaction structure you’ve negotiated.
Whether you’re acquiring a professional practice, retail operation, or service business, getting the non-compete right protects your investment. It gives you the runway you need to make the acquisition work without fighting off competition from the one person who knows the business better than anyone. Contact us today.