Contribution image Non-competition clause

Non-compe­ti­ti­on clause in a compa­ny purcha­se agreement

The conclu­si­on of a compa­ny purcha­se agree­ment often marks a signi­fi­cant milestone in business life, but it also invol­ves complex legal aspects that need to be careful­ly conside­red. One parti­cu­lar­ly important compo­nent is the non-compe­ti­ti­on clause, which plays a promi­nent role in the context of the compa­ny purcha­se agree­ment. This clause serves to protect the buyer from poten­ti­al compe­ti­ti­on from the seller, thereby safeguar­ding the integri­ty and value of the acqui­red compa­ny. Its importance extends far beyond the indivi­du­al transac­tion and plays a crucial role in all business transac­tions. This intro­duc­tion is inten­ded to provi­de an overview of the relevan­ce of the non-compe­ti­ti­on clause and to empha­sise its central role in compa­ny acquisitions.

The most important facts at a glance

  • Non-compe­ti­ti­on clause in the Compa­ny purcha­se agree­mentImportant contrac­tu­al agree­ment to protect the buyer from compe­ti­ti­on from the seller.
  • Legal basis in Germa­ny: Obser­ve the regula­ti­ons in the Unfair Compe­ti­ti­on Act (UWG) and the German Civil Code (BGB).
  • Signi­fi­can­ce for the buyer: Protec­tion of the acqui­red compa­ny value and safeguar­ding of the investment.
  • Advan­ta­ges for the seller: Clear bounda­ries for future entre­pre­neu­ri­al activi­ties and avoid­ance of poten­ti­al conflicts.
  • Important aspects in the formu­la­ti­on: Geogra­phi­cal, tempo­ral and factu­al limita­ti­on, precise formu­la­ti­on and legal requirements.
  • Oppor­tu­ni­ties and risks: Careful conside­ra­ti­on by buyer and seller, obtai­ning legal advice.
  • Conse­quen­ces of breach of contract: Avoid possi­ble claims for damages, contrac­tu­al penal­ties, damage to reputa­ti­on and legal conse­quen­ces by comply­ing with the clause.

What is a non-compe­ti­ti­on clause?

An anti-compe­ti­ti­on clause is a contrac­tu­al agree­ment that is often included in compa­ny purcha­se agree­ments. It aims to protect the buyer from poten­ti­al compe­ti­ti­on from the seller. In princi­ple, this clause prohi­bits the seller from opera­ting in the same indus­try or doing business with a compe­ti­tor of the acqui­red compa­ny after the sale of the company.

In Germa­ny, non-compe­ti­ti­on clauses in the context of compa­ny purcha­se agree­ments are regula­ted by the Unfair Compe­ti­ti­on Act (UWG) and the German Civil Code (BGB). The non-compe­ti­ti­on clause must be appro­pria­te and must not lead to a profes­sio­nal ban, as deter­mi­ned by the Frank­furt Chamber of Indus­try and Commer­ce, for example. 

A well-known court judge­ment that was handed down in connec­tion with non-compe­ti­ti­on clauses for Compa­ny sales Often cited is the “Media­print” judge­ment of the Federal Court of Justi­ce (BGH) from 1992, in which the BGH ruled (case no. II ZR 59/91) that non-compe­te clauses in compa­ny purcha­se agree­ments are general­ly permis­si­ble, provi­ded they are reasonable and protect the legiti­ma­te interests of the buyer without unreason­ab­ly disad­van­ta­ging the seller.

Signi­fi­can­ce in practi­ce: Protec­tion against compe­ti­ti­on when acqui­ring a company

The appli­ca­ti­on of a non-compe­ti­ti­on clause proves to be of crucial importance in practi­ce, parti­cu­lar­ly in the case of Compa­ny acqui­si­ti­on. When acqui­ring a compa­ny, the buyer not only acqui­res its assets and custo­mer base, but also its valuable exper­ti­se and trade secrets. A non-compe­ti­ti­on clause ensures that the seller does not enter into direct compe­ti­ti­on with the acqui­red compa­ny after the sale, thereby protec­ting the increase in value of the acqui­si­ti­on and safeguar­ding the buyer’s investment.

Further­mo­re, the non-compe­ti­ti­on clause can be benefi­ci­al for the seller by setting clear bounda­ries for their future business activi­ties and helping them to avoid poten­ti­al conflicts. Custo­mer loyal­ty can also be streng­the­ned by such a clause, as custo­mers have the confi­dence that the seller is not a direct compe­ti­tor and thus the conti­nui­ty of the business relati­onship is guaranteed.

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Content and wording of non-compe­ti­ti­on clauses

Non-compe­ti­ti­on clauses are essen­ti­al when conclu­ding a compa­ny purcha­se agree­ment, as they are inten­ded to protect the interests of both the buyer and the seller. The precise drafting of these clauses requi­res careful conside­ra­ti­on of various aspects in order to ensure their effec­ti­ve­ness and legal confor­mi­ty. Important aspects for the drafting of non-compe­ti­ti­on clauses are discus­sed below:

Scope of a non-competition clause

Geogra­phi­cal limitation

Defining the geogra­phi­cal scope of the clause is crucial to ensure that the seller does not compe­te direct­ly with the acqui­red compa­ny in a defined terri­to­ry. This requi­res a precise analy­sis of the business environ­ment, market condi­ti­ons and poten­ti­al expan­si­on oppor­tu­ni­ties to ensure an appro­pria­te limita­ti­on that takes into account both the protec­tion of the buyer and the profes­sio­nal oppor­tu­ni­ties of the seller.

Time limit

The durati­on of the non-compe­te obliga­ti­on must be reasonable and should be such that it protects the buyer’s legiti­ma­te interests without dispro­por­tio­na­te­ly affec­ting the seller. Too long a durati­on could unreason­ab­ly restrict the seller’s profes­sio­nal freedom, while too short a durati­on may not be suffi­ci­ent to adequa­te­ly safeguard the buyer’s investment.

Objec­ti­ve limitation

A clear defini­ti­on of the activi­ties or business areas cover­ed by the non-compe­te clause is crucial to avoid dispu­tes about the scope of the clause. This requi­res precise wording that includes all relevant activi­ties of the seller that could consti­tu­te unfair competition.

Aspects of content

The clause should be precis­e­ly worded and clear­ly identi­fy all relevant parties and the prohi­bi­ted actions in order to avoid misun­derstan­dings. This requi­res careful drafting of the wording of the contract, taking into account the speci­fic circum­s­tances of the compa­ny acqui­si­ti­on and the indivi­du­al interests of the contrac­ting parties.


Non-compe­ti­ti­on clauses must fulfil certain legal requi­re­ments in order to be effec­ti­ve. These include, in parti­cu­lar, the appro­pria­ten­ess of the prohi­bi­ti­on and the preser­va­ti­on of the seller’s profes­sio­nal freedom. Sound legal advice is essen­ti­al to ensure that the clause compli­es with the appli­ca­ble laws and regula­ti­ons and will stand up in court in the event of a dispute.

Non-compe­te clause sample compa­ny purchase

When acqui­ring a compa­ny, the drafting of the contract is crucial, especi­al­ly with regard to the non-compe­ti­ti­on clause. A sample compa­ny purcha­se agree­ment provi­des valuable guidance on how the non-compe­ti­ti­on clause can be formu­la­ted and ancho­red in the contract. Whilst indivi­du­al changes will undoub­ted­ly need to be made, the follo­wing templa­te is the first step towards a successful transaction.

The chambers of indus­try and commer­ce are also very active in the area of Compa­ny succes­si­on.

Oppor­tu­ni­ties and risks for non-compe­ti­ti­on clauses

The use of an anti-compe­ti­ti­on clause offers both oppor­tu­ni­ties and risks for the parties to a compa­ny purcha­se agree­ment. For the buyer, the clause offers considera­ble protec­tion against compe­ti­ti­on and enables him to maintain and further expand the value of the acqui­red compa­ny. In additi­on, the clause can also help to streng­then custo­mer loyal­ty and minimi­se the risk of loss of expertise.

For the seller, the risks of a non-compe­ti­ti­on clause can be that he is restric­ted after the sale of the compa­ny and may not be able to pursue similar activi­ties in the same indus­try. This can lead to finan­cial losses, especi­al­ly if the seller is unable to utili­se his exper­ti­se and contacts in the indus­try elsewhere.

It is important that both the buyer and the seller careful­ly consider the oppor­tu­ni­ties and risks of a non-compe­te clause and seek legal advice if neces­sa­ry to ensure that the clause is fair and balanced.

Opportunities and risks for non-competition clauses


  • Protec­tion from direct compe­ti­ti­on through the non-compe­ti­ti­on clause: The clause offers the buyer securi­ty against compe­ti­ti­on from the seller, which can maintain and increase the value of the acqui­red company.
  • Streng­thening custo­mer loyal­ty: Custo­mers are encou­ra­ged to remain loyal to the acqui­red compa­ny as the seller is not a direct competitor.
  • Legal protec­tion: The clause provi­des both parties with a clear legal basis and can prevent dispu­tes over compe­ti­ti­on issues.
  • Conti­nui­ty of business opera­ti­ons: Protec­tion from direct compe­ti­ti­on can ensure the stabi­li­ty of business opera­ti­ons after the acquisition.


  • Restric­tion of profes­sio­nal freedom through the non-compe­ti­ti­on clause: Non-compe­ti­ti­on clauses can restrict the seller’s profes­sio­nal oppor­tu­ni­ties, especi­al­ly if he is not allowed to pursue similar activi­ties in the same indus­try, which can lead to finan­cial losses.
  • Poten­ti­al loss of exper­ti­se and contacts: The seller may find it diffi­cult to utili­se their exper­ti­se and contacts in the indus­try elsewhe­re, which may result in a loss of poten­ti­al revenue.
  • Limita­ti­on of innova­ti­on: A clause that is too restric­ti­ve could prevent the seller from innovat­ing in related indus­tries or new business areas, which could impair growth poten­ti­al in the long term.
  • Comple­xi­ty of the negotia­ti­ons: Drafting a balan­ced clause often requi­res complex negotia­ti­ons and can compli­ca­te contract negotiations.

Conse­quen­ces of a breach of contract

Non-compli­ance with a non-compe­ti­ti­on clause can have serious conse­quen­ces. In the event of a breach of contract, the buyer can take legal action and claim damages. In additi­on to paying damages, the seller may also be obliged to pay a contrac­tu­al penal­ty that has alrea­dy been stipu­la­ted in the compa­ny purcha­se agree­ment. This contrac­tu­al penal­ty serves as a deter­rent and is inten­ded to encou­ra­ge the seller to honour the clause.

In additi­on, a breach of contract can also damage the reputa­ti­on of and trust in the seller. Custo­mers and poten­ti­al business partners may percei­ve the vendor’s behaviour as unrelia­ble or unpro­fes­sio­nal, which can have a negati­ve impact on future business relationships.

In order to ensure adequa­te compen­sa­ti­on for the damage caused by the breach of contract, the buyer may also be entit­led to compen­sa­ti­on. This compen­sa­ti­on is inten­ded to cover the finan­cial losses incur­red by the buyer as a result of the breach of contract and to protect the buyer’s investment.

It is there­fo­re of paramount importance that both the buyer and the seller under­stand the conse­quen­ces of a breach of contract and reali­se that compli­ance with the non-compe­ti­ti­on clause is crucial to preser­ve the integri­ty of the compa­ny purcha­se agreement.

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An anti-compe­ti­ti­on clause in a compa­ny purcha­se agree­ment can be of crucial importance in protec­ting the buyer from unwan­ted compe­ti­ti­on and preser­ving the value of the acqui­red company. 

The exact wording of the clause should be careful­ly exami­ned in order to fulfil the legal requi­re­ments and the indivi­du­al needs of the contrac­ting parties. 

It is advisa­ble that both the buyer and the seller thorough­ly exami­ne the advan­ta­ges and disad­van­ta­ges of a non-compe­te clause and seek legal advice if neces­sa­ry. Compli­ance with this clause is crucial to prevent legal conse­quen­ces and poten­ti­al reputa­tio­nal damage.

The use of a non-compe­ti­ti­on clause can there­fo­re help to ensure a successful compa­ny acqui­si­ti­on and protect the interests of both parties.

FAQ - The most frequent­ly asked questions

What are custo­mer protec­tion clauses and what signi­fi­can­ce do they have in a compa­ny purcha­se agree­ment?

Custo­mer protec­tion clauses in the compa­ny purcha­se agree­ment are agree­ments that are inten­ded to protect the buyer from losing custo­mers by prohi­bi­ting the seller from compe­ting with these custo­mers. They are important in order to safeguard the value of the acqui­red compa­ny and maintain the custo­mer base.

What effect does a non-compe­te clause have on the compa­ny value and purcha­se price?

A non-compe­te clause can have a positi­ve effect on the value of the compa­ny and the purcha­se price, as it offers the buyer a certain degree of certain­ty that the seller will not enter into direct compe­ti­ti­on immedia­te­ly after the sale and thus reduce the value of the company.

What is meant by a ban on employee poaching?

A ban on poaching employees prohi­bits the seller from poaching or hiring employees of the compa­ny being sold. This is inten­ded to protect the labour force and exper­ti­se of the compa­ny and ensure that the employees remain with the buyer.

How is the materi­al and geogra­phi­cal scope of non-compe­ti­ti­on clauses deter­mi­ned?

The materi­al and geogra­phi­cal scope of non-compe­te clauses is usual­ly deter­mi­ned by speci­fic wording in the contract that defines the type of activi­ties and the geogra­phi­cal areas in which the seller may not opera­te after the sale. This serves to ensure an appro­pria­te balan­ce between the protec­tion of the buyer’s interests and the seller’s profes­sio­nal opportunities.