When selling your business in California, it’s crucial to understand the state’s strict stance on non-compete agreements. California generally prohibits non-compete clauses under California Business and Professions Code Section 16600, which invalidates contracts that restrict a person’s right to engage in a lawful profession or business. However, California allows limited exceptions for specific situations, including the sale of goodwill or the sale of the business’s assets, as well as the sale of all of the owner’s stock or ownership interest in the company. In that case, a seller may agree not to compete within a certain geographic area for a reasonable time to protect the value of the business being sold.
For small business owners in San Diego County, it’s important to consult with an attorney familiar with California’s unique laws to ensure that any post-sale restrictions or agreements comply with state law. In addition to including a non-compete for a specified period of time, another common strategy is to include a provision in the sale agreement that restricts the seller from using the selling businesses’ trade secrets to solicit clients. Another strategy is to include a provision to prohibit the seller from soliciting employees, although it is unclear if that will be enforceable in the future as recent court cases have indicated that it would likely not uphold that type of provision. Of course, an iron-clad confidentiality or non-disclosure provision is an essential provision in the purchase agreement. Always seek legal advice to navigate these complexities and ensure your sale goes smoothly without running afoul of California’s laws.