One of the things many sellers only seriously address late in a negotiation is the period after the sale where they can't start or get involved in a competing business — often referred to as a non-compete restriction. The better you know the framework in advance, the better you can negotiate a period that actually fits your own plans.
What is a non-compete restriction?
The non-compete restriction is the period during which you, as seller, are obligated to refrain from starting, running, owning, or otherwise being involved in a business that competes with the one you've just sold. It's set out in the purchase agreement through a non-compete clause, often combined with a non-solicitation clause preventing you from actively contacting the business's former customers during the same period.
Why does a buyer require it?
The buyer isn't just paying for the business's physical assets — a large part of the price covers goodwill: customer relationships, reputation, and the future earnings these relationships are expected to generate. Without a restriction period, you as seller could in principle start a new, competing business the day after closing and take the customers with you — undermining the very basis of the price the buyer just paid.
How long can the restriction last?
Here, two different sets of rules are effectively in play, depending on what the clause covers:
- Up to 3 years, if the clause protects both goodwill and transferred know-how — that is, if the buyer also takes over specific technical or business knowledge from you, beyond the customer relationships themselves.
- Up to 2 years, if the clause only protects goodwill — with no special know-how transferred as part of the deal.
This limit follows from competition law principles on when a restriction of competition can be considered ancillary — that is, directly linked to and necessary for the completion of the business transfer itself. If the clause goes beyond what's actually necessary to protect what the buyer paid for, it risks being deemed an unlawful restriction of competition — not merely an "unreasonable" clause under contract law.
This is different from an ordinary employment non-compete
It's important not to confuse a non-compete restriction in a business sale with an ordinary non-compete clause in an employment relationship. If you're employed and sign a clause as an employee, you're protected by Danish employment clause legislation, which sets a maximum duration of 12 months (6 months for a combined clause), among other things. If you're instead selling your own business, the clause is entered into as part of a commercial deal between two parties — here, employment clause legislation doesn't apply in the same way, which is part of why a selling owner can be bound harder and longer than an ordinary employed director.
Geographic scope: only where the business actually competes
The restriction must be geographically limited to the area where the business has actually operated or could realistically be expected to compete. A clause covering the whole of Denmark — or the whole world — for a locally rooted trades business will typically be harder to defend as reasonable than a clause limited to the natural market area.
What counts as "competing"?
Typically the specific industry and the activities the business actually carried out at the time of the sale — not any conceivable future business you might come up with. If you're considering starting something completely different after the sale, get it clarified during the negotiation whether it actually falls within the clause's definition of "competing business".
What happens if you breach the restriction?
The purchase agreement usually includes a liquidated damages clause — a predetermined amount you must pay on breach, without the buyer first having to prove a specific financial loss. That makes a breach potentially expensive, even if the new activity doesn't meaningfully harm the buyer. Beyond the liquidated damages, the buyer can in some cases also seek an injunction (through the courts) against you continuing the competing activity.
Can you negotiate the scope of the restriction?
Yes — like the rest of the purchase agreement, the non-compete restriction is subject to negotiation. If you already know you'd like to start something new after the sale — possibly in a different industry, or a different geographic area — say so early in the negotiation, so the clause can be precisely limited to what the buyer actually needs protection against.
What if you'll keep working in the company after the sale?
If you become employed by the sold business for a transition period — for instance as part of a gradual handover — that employment can be covered by the ordinary rules on employment clauses for that specific part of the relationship. It's therefore important to keep the non-compete restriction from the sale agreement separate from any clauses in a subsequent employment contract, so you don't end up with two conflicting sets of rules.
Frequently asked questions
Can I start a business in a completely different industry during the restriction period?
Yes, generally — the clause only covers the specific industry and activities the sold business actually carried out, not any form of business activity whatsoever.
Is 2–3 years always the maximum a restriction can last?
That's the framework following from competition law principles on what's necessary to protect goodwill and transferred know-how. A longer period risks being deemed an unlawful restriction of competition, not just an unreasonable clause under contract law.
Can I negotiate the restriction down if I already know I want to start something new?
Yes, that's exactly something you should raise early in the negotiation — the sooner the buyer knows your plans, the more precisely the clause can be limited, without unnecessarily tying up your future.
Negotiating the terms of a non-compete restriction in connection with a sale? Book a no-obligation call, or read the short version in our article on non-compete clauses in a business sale.
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