A seller's non-compete should name who is bound, which activities are barred, where and for how long, and it should also bar the seller from soliciting your customers and employees. Courts generally enforce non-competes signed in the sale of a business more readily than employee non-competes, but only if the time, territory and scope are reasonable for the business you bought, and state law varies. Any price allocated to the non-compete is generally amortized by you over 15 years and taxed to the seller as ordinary income, so keep that allocation modest. State rules keep changing, so as of October 2026 the safe course is a lawyer licensed in the business's state drafting it.
When you buy a business, you pay for its goodwill: the customers, reputation and relationships. A seller who opens across the street takes that goodwill back. Courts generally see that as a reason to enforce the promise. Many states that restrict employee non-competes still allow them in a sale of a business, within limits. Your lawyer will tell you the limits where the business operates.
Overreach is the main risk. If the territory, duration or scope goes further than needed to protect what you bought, a court may narrow it. In some states it may refuse to enforce it at all. A narrow covenant you can enforce is worth more than a broad one you can't.
There is no single right number. Tie the terms to the business.
The seller's motive matters too. In IBBA's Q2 2026 Market Pulse survey, retirement was the top reason owners sold: 45% of sellers under $500K and up to 72% in $1M to $2M deals. A retiring seller usually accepts a non-compete easily. A younger seller staying in the trade will push back on scope. Probe that before the letter of intent.
Illustrative figures.
Where these numbers come from: The 15-year amortization of acquisition non-competes comes from Section 197 of the Internal Revenue Code. The 24-month seller limit and the earnout prohibition are from SOP 50 10 8.1, summarized by Cantrell Firm and Beancount's SOP 50 10 8.1 guide. Seller motives are from the IBBA Market Pulse Q2 2026 highlights. Enforceability depends on state law. Confirm with a lawyer in that state. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).
If the spouse owns part of the business or works in it, yes. Otherwise the seller could compete through them. Your lawyer will decide who else should sign.
Disclose it in the purchase agreement and carve it out by name. Limit what it may do so it can't grow into a competitor.
Employee non-competes face stricter rules, and some states bar them. Non-solicitation, confidentiality and retention pay usually do more. See how to keep employees after you buy.
Your lawyer will usually seek an injunction first, because lost customers are hard to price later. A right to offset damages against a seller note helps, subject to your lender's terms.
With the documents drafted, the question becomes timing: how long does it take to buy a business? If you plan to build a holding company, make every non-compete assignable to affiliates and future buyers, because a buyer of the platform will check.
Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.
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Meraki Dealmakers is a service of Meraki Partners, LLC.
Meraki Partners, LLC is an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm, and does not solicit investors or receive compensation based on capital raised.
© 2026 Meraki Partners, LLC