What is a Covenant Not to Compete?

A covenant not to compete, also called a non-compete clause, is a formal agreement in a sale of a business in which the seller agrees not to compete in the same business for a period of time or in a specific geographic area. Many business owners (when selling their business) sign a covenant not to compete to satisfy the new owner. This prevents the seller from selling his/her business and then opening a competing business within the same geographical area. It is usually a seperate document in addition to the purchase agreement. A covenant not to compete is generally legal and enforceable, although there are some exceptions in some states.

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