Leaving business as shareholder - signing a non-compete??

[Monty Python]

If you have shares in a company, the last thing you want to do is go into competition as that may force the value down or, if they go out of business, worthless. If anything you want then to keep going so the shares increase in value.

[Undirection]

JustinP1 said:

Undirection said:

JustinP1 said:

It sounds like you've come together in an amicable agreement on price etc, then the non-compete has been chucked in.

.

That's exactly it. For all I know i could end up working for a competitor, its unlikely but I I don't want him telling me what I can and can't do. I'll 'charge' him for a non compete but he can't do anything about it if I say No I believe. its not part of our shareholder agreement. I can see he paranoid about me basically running the business currently and him just doing the admin/finances/marketing but that's his problem.

In which case then, legalities totally aside, as a negotiation issue this should be brought up.

Ask him what he is hoping to achieve by the inclusion of a clause. The answer is of course "So you don't X, and so I can Y." that of course has an economic value to his benefit, and your detriment.

It may be that he's simply thrown it in as an afterthought and is not too precious about it, in which case he might drop it altogether. On the other hand, if he feels very strongly about it, then this clearly has an economic value to him which should end up being reflected in the negotiations and indeed the value of the agreement.

Thanks, good advice.

[Undirection]

Just had 'the chat'. He is saying he won't give me my cash back unless I sign an NDA. He's worried I'll just start up in Jan (I won't but I could easily do this). I countered with the fact this was not what was agreed originally and that agreement did not state anything about an NDA. It got a bit awkward an then someone else came into the office. I need some legal advice I think...

[anonymous-user]

An "NDA" is different to a non-compete.

In this instance are you an employee who is leaving as well as a shareholder?

Do you have any restrictions in your employment contract?

[Undirection]

Sorry, I meant non compete!

I am a shareholder and so director but also was briefly paid for some work i did for the business but we didn't bother with a JD for that as ti was essentially more of the same role (in terms of workload).

[AyBee]

Are you just getting back what you put in or are you getting back 10% of what the business is now worth?

If you have no plans to compete, then surely you're happy to sign one, it's just the amount of time that is an issue. I have no idea what scale your 10% is on, but if you give him a sliding scale of how much you want which increases with the number of years non-compete he wants then I'm sure you can come to an agreement. It's not really something legal advice will help with at this stage, it's a commercial decision...

[Undirection]

Just getting my investment back directly. We had agreed that I could do this and so I am doing so. We have never said anything about a non compete and there is nothing in our agreement about it but he seems to be saying its a condition of getting the money back and it bloody isn't. He's trying to stop me starting up in competition and if he pisses me off enough I might just do that! (I won't but...)

[AyBee]

How many years ago was it that you put your money in? I'm guessing the business is actually worth more now than it was when you put your money in?

If he wants you to sign a non-compete, I'd push for market value of your 10% share

[anonymous-user]

OP, lawyer up. If you have lots of cash call Meriel Schindler at Withers or Dan Aherne at Olswang. If you have some but a bit less cash call David Ludlow at Barlow Robbins or Richard Thorpe at Shakespeareb Martineau.

Or go direct access to the Bar - try Justina Stewart at Selborne Chambers.

[Undirection]

Had a chat to Mrs UnD as she is used to managing a lot of business transactions and she said that I should just go with it. She said it's not worth falling out over something that is very unlikely to affect me anyway. I've known my business partner for 7-8 years and we've got on well. I put £10k in a year ago and I'll get £10k out, the business isn't worth much more than it was originally so I haven't really lost out. I may just cut it from 3yrs to 1yr but otherwise its not worth arguing over tbh.

[anonymous-user]

Perhaps say that you are minded to agree but that you would like your business partner, as part of the package, to cover or contribute to the modest cost of you having the proposed agreement looked at by a lawyer. To keep costs down, go the direct access route - I recommended a suitable barrister above. Justina Stewart is very commercial, straight talking, user friendly, and fast, and she is still junior enough to be reasonable in cost (she used to be an economist and investment banker and is much more business savvy than her relatively few years in legal practice might suggest).

[Nezquick]

From my memory of legal training in this field, I'm pretty sure that non-compete agreements have to be reasonable.

For instance, they should only stop you competing for a reasonable period of time (3 years is way too long IMO) and in a certain geographical area (i.e. he should not be able to stop you moving 200 miles away and starting up again) but this will all depend on the type of business.

[anonymous-user]

I am sorry to be blunt, but offering us your hazy memories of a law course that you may possible not have paid sufficient attention to is not of much use to anyone. This is a vendor covenant, and the principles that apply to vendor covenants are not the same as those that apply to employee covenants. It is not uncommon to see enforceable five year covenants in business sales. Three years might be a tad high here, but it is not manifestly unenforceable. I add that two year covenants for employees are becoming more common than they used to be, and are quite often upheld by Judges. Again, I'm sorry to be blunt, but unless you are bang up to date on this ebbing and flowing area of the law, half remembered learning from some time ago is useless.

[Nezquick]

Breadvan72 said:

I am sorry to be blunt, but offering us your hazy memories of a law course that you may possible not have paid sufficient attention to is not of much use to anyone. This is a vendor covenant, and the principles that apply to vendor covenants are not the same as those that apply to employee covenants. It is not uncommon to see enforceable five year covenants in business sales. Three years might be a tad high here, but it is not manifestly unenforceable. I add that two year covenants for employees are becoming more common than they used to be, and are quite often upheld by Judges. Again, I'm sorry to be blunt, but unless you are bang up to date on this ebbing and flowing area of the law, half remembered learning from some time ago is useless.

Fair enough.

[BertBert]

As a slight tangent, it's a pretty small amount of money and I would expect barrister advice to eat a good chunk quite quickly. So if the op wants legal advice does he need barrister level especially for a relatively simple question?

I'd certainly be worried my 10k would disappear in a puff of lawyers' fees.

Bert

[anonymous-user]

Barristers are often cheaper than solicitors, hour for hour. Barristers have lower overheads and tend to do the work themselves whereas a law firm has high overheads and the work often gets farmed out by the contact solicitor to a junior member of staff. The direct access scheme allows the OP to consult a barrister, without involving a solicitor, for what might be a few hundred quid. If thousands are at stake, and there is a heavy duty agreement bolted on to receipt of the money, the expense might be prudent.

[TooMany2cvs]

If you aren't going to be competing, is there a problem in signing a non-compete agreement?

Yes, he's probably being bloody-minded and paranoid in demanding you sign it. But aren't you being bloody-minded and paranoid in refusing...?

If it does become an issue at some point in the future, because you change your mind about not competing, then doesn't that prove he was justified in asking for it?

[Jasandjules]

TooMany2cvs said:

Yes, he's probably being bloody-minded and paranoid in demanding you sign it. But aren't you being bloody-minded and paranoid in refusing...?

Why restrict yourself in future for no benefit?

Why sign something you did not agree to before that point?

[BertBert]

Thanks, didn't know that.
Bert

Breadvan72 said:

Barristers are often cheaper than solicitors, hour for hour. Barristers have lower overheads and tend to do the work themselves whereas a law firm has high overheads and the work often gets farmed out by the contact solicitor to a junior member of staff. The direct access scheme allows the OP to consult a barrister, without involving a solicitor, for what might be a few hundred quid. If thousands are at stake, and there is a heavy duty agreement bolted on to receipt of the money, the expense might be prudent.

[anonymous-user]

Mandy Rice-Davies.