Selling a Business

Non-competes and Transition Services

Price the two obligations you take on at closing — what you may not do afterwards, and what you must do for the buyer during the handover — instead of signing them as boilerplate at the end of a long night.

  • Advanced
  • 9 min total
  • 12 chapters

What decision this helps you make: What scope, duration, and geography of restrictive covenant to accept, and how to define and price the transition services you will provide.

What this topic is

The post-closing obligations a seller takes on: a covenant not to compete and related non-solicitation and confidentiality undertakings given in connection with the sale of goodwill, and a transition services arrangement under which the seller or the seller's retained entity provides defined services to the buyer for a defined period. Both are consideration, both are negotiable, and both have tax consequences.

Why it matters

A five-year covenant across a broad territory can determine what you are permitted to do with the next decade of your life, and it is frequently agreed with almost no negotiation because it appears in a schedule. A transition services arrangement that is undefined in scope will consume your time indefinitely for no payment. Both are worth real money and both are settled in the final week when everyone is tired.

Who should learn it

Owners approaching signing, and advisers reviewing restrictive covenants and transition arrangements.

What you will understand

  • How sale-of-business covenants are treated differently from employment covenants, and why state law varies enormously
  • The tax consequence of allocating purchase price to a covenant, and why buyers sometimes want it
  • How to define transition services so the scope, duration, and price are fixed
  • The reverse transition problem — what the buyer must do for you

Prerequisites

Common misconception

"Non-competes are unenforceable now, so it does not matter what I sign." The 2024 federal rule was set aside nationwide and subsequently abandoned, and in any event it contained an exception for covenants given in connection with a bona fide sale of a business. State law varies enormously, and even in the strictest states there is generally a sale-of-business exception. A covenant given as part of selling goodwill is far more likely to be enforced than one given by an employee.