When you’re investing time, effort, and money into buying a business, you want to make sure your new acquisition is safe from any moves by the previous owner. One way to do this is through a solid ‘restraint of trade’ clause in your sale of business contract or alternatively through a separate restraint deed.
This clause is all about protecting you by preventing or limiting the seller from getting involved in, owning, or operating a competing business. Essentially, it stops the seller from running a similar business within a certain area for a set period.
A good restraint of trade should also keep the seller from poaching your key staff or customers, ensuring they can’t interfere with how you run the business you just purchased. It’s worth including key members or representatives of the seller (like a director if the seller is a company) to make sure the restraint is effective.
Usually, a ‘cascading’ restraint should be used, which provides a series of progressively narrower or more limited restrictions, which ‘cascade’ down to the next level if the Court were to find the restraint excessive or unenforceable. Without this, if the original restraint were found unreasonable, then there is no fall-back position to continue to restrict the seller.
It’s important to get your solicitor’s advice on this because the restraint has to be reasonable. If it’s ever challenged in court, several factors will be considered to determine its fairness, including:
- The business’s location
- The parties involved
- The duration of the restraint
- The area it covers
- The scope of the restraint and what activities are restricted
If the restraint is found to be too broad, excessive, or unreasonable, it could be deemed inoperative, leaving you at risk.
Keeping your business’s goodwill intact is crucial. Controlling the seller’s actions regarding the business, its staff, and its customers is key to your success. But remember, the restraint must be fair and not overly restrictive on the seller.
If you have any questions on restraint of trade or any other legal matters, feel free to get in touch.
Written by Leo Khreish, Paralegal – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping buyers find the right pharmacy and attaining the best legal advice to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have the unique and highly specialised experience with providing contract and other legal advice for Pharmacy investors.
About the Author:
If there’s anything Leo loves as much as boxing and a round of golf at the links, it’s kicking back and relaxing at the end of the day. Yes, it’s all about balance for Leo — which is why he helps his clients balance their legal matters, too.
When Leo joined the team as a paralegal, he came with a dynamic, proactive, and highly reliable approach. He is about to add a Graduate Diploma in Legal Services to his recently completed law degree at the University of Notre Dame, and his Bachelor of Commerce at the University of Melbourne — giving him the qualifications to back up his knowledge and experience, so he can really embrace his role as a Paralegal.
What’s more, his inquisitive nature and attention to detail keeps him learning on the job and allows him to find the best legal solutions for clients.