A non-compete clause is a provision in the purchase agreement. In it, the seller agrees not to compete with the business they have handed over, for a defined period and within a defined area. In practice that means: no similar shop right around the corner, and no deliberately luring away the existing loyal customers.
The reason is simple and fair. When you buy a small business, you pay not only for equipment and stock. You pay above all for the customer relationships and the reputation, the goodwill. If the seller started up again next door a week after handover and took their old customers along, exactly what the buyer just paid for would lose its value.
A non-compete clause is only legally valid if it stays reasonably limited. Around two years is common in terms of duration. The area is restricted to where the business was actually active, and the scope is tied to the specific trade. A ban that effectively pushes the seller out of their learned profession permanently and everywhere goes too far and is therefore unenforceable.
As a rule, all of this is set out directly in the purchase agreement or in a separate annex to it. It often comes with a contractual penalty that applies if someone breaks it. That way, no one has to prove every single loss in a dispute.
A fair view from both sides pays off. For the buyer, the clause brings security during the business handover. For the seller, it should be narrow enough that they can move freely again once the period ends. This text explains the basics and does not replace individual legal advice.
For business sellers
Read the clause carefully and check duration, area and trade. A ban that ties you for more than about two years or well beyond your region is usually too broad and open to challenge. It is worth renegotiating, often together with the purchase agreement as a whole.
Think about your plans after the sale. If you want to keep advising the buyer during the business handover, make sure the contract states that such cooperation stays expressly allowed and does not count as prohibited competition.
For corporate buyers
Insist on a clear clause. You are paying for the goodwill. Without a non-compete, the seller could take the loyal customers along and hollow out exactly that value.
Draft it reasonably rather than maximally. A realistically limited ban (say two years, your own region and trade) holds up in court, while an excessively broad one can fall away entirely. Check this early, ideally during due diligence.
Example
Anna takes over a small hair salon for EUR 120,000. The purchase agreement contains a non-compete clause: for the next two years, the seller may not open a new salon within a 15-kilometre radius and may not actively poach loyal customers. That way the clientele Anna paid for actually stays with her. Once the period expires, the seller is completely free again.
FAQ
What is a non-compete clause even for?
It protects the buyer, who has paid for the customer relationships and the goodwill. Without this clause the seller could start up again next door and take the loyal customers along, which would destroy exactly what was bought.
How long may a non-compete clause last?
Around two years is common. It has to be reasonably limited in time, in area and in scope of trade. A ban that effectively pushes the seller out of their profession forever is too broad and legally unenforceable.
Where is the non-compete clause recorded?
Usually directly in the purchase agreement or in a separate annex to it. It often includes a contractual penalty that applies if someone breaks it.
What happens if a ban is drawn too widely?
An excessively broad non-compete can be struck down by a court in full or in part. That is why a realistic, reasonable wording is in both sides' interest. An over-strict ban ends up being of no use to the buyer.
May the seller still help out in the business after the sale?
Yes, if that is expressly allowed. Advisory support during the business handover is something other than prohibited competition. The contract should clearly distinguish the two.
Does this also apply to buying instead of founding?
Especially then. If you buy a business instead of founding a new one, you pay for existing customers and an established name. A fair non-compete makes sure that this head start stays with you as the buyer instead of vanishing straight away.
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