How to Craft Strategic Restraint Clauses in Business Agreements
In this video, I discuss the importance of restraints in business agreements, particularly in the sale of a business or in shareholders' agreements. The purpose of restraint is to prevent the vendor from opening a similar business nearby or competing with the business that has been sold. There is nothing worse than buying a business and a family member sets up shop down the road. To get strategic tips to make the restraint effective watch the video below.
Restraints can be very technical. We see people make a lot of mistakes. If you have any queries? Is your restraint strong enough or enforceable, come and see us to make sure you are fully protected.
Got a question or need advice contact us below
VIDEO TRANSCRIPT
Ross Millen
Hi. We had a client the other day who was selling their business, and one of the things in a sale of business is a restraint. Something that prevents the vendor opening up the same or a similar business next door or within a certain area, or for a certain time that would compete with the business that's just been sold. Naturally, the purchaser doesn't want to pay a lot for a business and find that the vendor just starts a similar or the same business, or has their son or their partner or funds or advisors does a whole range of things nearby. Or could tempt a staff away from the business that's just been sold or approach clients. So we find in a sale of business agreement there's always some sort of restraint, but it has to be a reasonable one. The courts won't enforce something unreasonable. We have this technique of putting in, will it be five years or four years or three years, sort of a cascading effect.
I don't want to get too technical, but in a sale of business agreement, anything like that, there should be a good restraint. Also, if you are acting for the purchaser, you want to make sure that you've got a good restraint. But also, this applies in shareholders' agreements. Someone gets bought out of the shareholder and then you don't want them going and setting up a competing business for a period of time. But there's another restraint you have to be careful about, and that's employees or consultants. An employee, when he leaves, he or she leaves, they can't take secrets with them, but they should be able to work in their normal employment. So you can restrain them, some of the things, but you can't completely restrain them from their usual occupation. Now restraints can be very technical. We see people make a lot of mistakes. Are they enforceable? Are they unreasonable? Are they not strong enough? So if you've got any queries, buying, selling businesses, shareholder agreements, employment contracts, consultancy agreements, remember to come and see Millens. We can advise you about all those sorts of agreements, all the proper restraints, and make sure that your fully protected. I'm Ross Millen, Millens, come and give us a call.
