A contract in restraint of trade is an agreement where a person selling a business commits to not starting a similar business within a specified distance and time frame from the business they sold. This type of contract aims to protect the buyer's investment by preventing the seller from directly competing in the same market area.
This term is commonly used in business law, particularly in transactions involving the sale of businesses. It falls under civil law and is relevant in cases where the seller agrees to limitations on their future business activities to protect the buyer's interests. Users can manage these agreements using legal templates from US Legal Forms, which are drafted by experienced attorneys.
Here are a couple of examples of abatement:
Example 1: A restaurant owner sells their establishment and agrees not to open another restaurant within a five-mile radius for two years. This protects the new owner's customer base.
Example 2: A software company sells its product line and includes a clause preventing the seller from starting a competing software business for three years in the same market. (hypothetical example)
| State | Key Differences |
|---|---|
| California | Generally enforces reasonable restraints, especially in employment contexts. |
| New York | More stringent on non-compete clauses; must be reasonable in duration and geographic scope. |
| Texas | Allows for non-compete agreements if they are part of an enforceable agreement. |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition | Key Differences |
|---|---|---|
| Non-compete agreement | A specific type of contract preventing an individual from competing in business. | More focused on individual employees than business sellers. |
| Non-solicitation agreement | A contract that prohibits soliciting clients or employees from a previous employer. | Does not prevent starting a similar business, only soliciting existing clients. |
If you are entering a contract in restraint of trade, ensure it is reasonable and clearly defined. Consider using US Legal Forms for templates that can help you draft a compliant agreement. If your situation is complex, seeking advice from a legal professional is advisable.
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It is an agreement where a seller of a business agrees not to compete in the same market for a specified time and area.