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Non Compete Clause In Shareholders Agreement Template for United States

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Key Requirements PROMPT example:

Non Compete Clause In Shareholders Agreement

"I need a Non Compete Clause in Shareholders Agreement for our California-based tech startup, specifically focused on protecting our AI technology and preventing shareholders from working with competing firms within North America for 2 years after share disposal."

What is a Non Compete Clause In Shareholders Agreement?

A Non-Compete Clause in Shareholders Agreement is essential for protecting company interests when shareholders have access to sensitive information or significant influence over the business. This document is particularly relevant in the United States, where enforcement varies by state and requires careful consideration of duration, geographic scope, and reasonableness of restrictions. It typically includes specific provisions about prohibited activities, time limitations, and territorial boundaries, while ensuring compliance with both federal and state regulations. The agreement becomes particularly important during ownership transitions, mergers, or when bringing in new strategic investors.

What sections should be included in a Non Compete Clause In Shareholders Agreement?

1. Parties: Identification and details of all shareholders and the company

2. Background: Context of the agreement and relationship between parties, including the purpose of the non-compete provisions

3. Definitions: Key terms used throughout the agreement including 'Competitive Business', 'Restricted Period', 'Territory'

4. Scope of Non-Compete: Detailed description of prohibited activities and protected business interests

5. Duration: Specific time period for which the non-compete restrictions apply

6. Geographic Limitations: Clear definition of the territorial scope where restrictions apply

7. Consideration: Details of value provided in exchange for non-compete obligations

8. Enforcement: Remedies and procedures for enforcing the non-compete provisions

9. General Provisions: Standard clauses including governing law, severability, and amendment procedures

What sections are optional to include in a Non Compete Clause In Shareholders Agreement?

1. Carve-outs: Specific exceptions and permitted activities excluded from non-compete restrictions

2. Garden Leave: Provisions for paid leave during restriction period, including terms and conditions

3. Non-solicitation Provisions: Additional restrictions on soliciting employees, customers, or suppliers

4. Confidentiality Obligations: Additional provisions regarding the protection of confidential information

What schedules should be included in a Non Compete Clause In Shareholders Agreement?

1. Schedule A - Restricted Activities: Detailed list of specific prohibited activities and business areas

2. Schedule B - Geographic Territory: Detailed description or map of restricted geographic areas

3. Schedule C - Consideration Details: Specific details of compensation or benefits provided as consideration

4. Schedule D - Competitive Businesses: List of specific competitors or types of businesses considered competitive

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶ÒõÊÓÆµ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Clauses

























Industries

State-Specific Non-Compete Laws: Non-compete laws vary significantly by state. Some states like California largely prohibit non-competes, while others have specific requirements for enforceability. Recent state law trends are moving towards restricting non-competes.

Federal Antitrust Laws: Key federal regulations including Sherman Antitrust Act, Clayton Act, Federal Trade Commission regulations, and the recent FTC proposed rule to ban non-competes must be considered.

Employment Law Considerations: Fair Labor Standards Act, state employment laws, and the legal distinction between employees and shareholders need to be taken into account when drafting non-compete provisions.

Securities Laws: Securities Act of 1933, Securities Exchange Act of 1934, and state securities laws ('Blue Sky Laws') must be considered as they affect shareholder agreements.

Case Law Precedents: Existing case law regarding reasonable duration, geographic scope, scope of restricted activities, legitimate business interests, and consideration requirements must inform the drafting.

Constitutional Issues: Constitutional considerations including right to work, interstate commerce, and contract rights must be addressed in the agreement.

Enforceability Requirements: Key enforceability factors including reasonable time limitations, geographic restrictions, scope of prohibited activities, legitimate business interest protection, consideration provided, and public policy concerns must be incorporated.

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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