Non-Compete Clauses in a Business Sale: What Can You Do After Selling?

When you sell a business, you're not just selling assets and customers — you're also selling goodwill, meaning the value embedded in the business's reputation, relationships and future earning power. To protect exactly that, most business deals include a non-compete clause restricting what you, as the seller, can do after the handover.

What is a non-compete clause in a business sale?

A non-compete clause commits you not to start, run, or get involved in a competing business for an agreed period after the sale — often combined with a non-solicitation clause preventing you from actively contacting the business's former customers.

Important: this is different from an ordinary employment non-compete

It's worth knowing the difference between two situations that are often confused. If you're employed by a company and sign a non-compete or non-solicitation clause as an employee, you're protected by Danish employment clause legislation — which includes, among other things, a maximum duration of 12 months for each type of clause (6 months for a combined clause), and a number of conditions that must be met for the clause to be valid at all.

If you're instead selling your own business, the non-compete clause is entered into as part of a commercial deal between two (typically business) parties — not as part of an employment relationship. Here, the employment clause act doesn't apply in the same way, and the clause can therefore, depending on the circumstances, be agreed with a different duration. That said, the clause still needs to be reasonable in scope, duration and geography to be enforceable — a clearly unreasonable or excessively broad clause risks being set aside if it were ever tested in court.

If you yourself become employed by the sold business after the sale (e.g. for a transition period), that employment can in itself be covered by the ordinary rules on employment clauses for that specific part of the relationship — so it's important to keep the two things separate in the agreement.

What's typical for a clause in a business sale?

• Duration: Often between 1 and 3 years after the takeover, but it depends on the industry and the size of the deal.
• Geographic scope: Should be reasonably proportionate to where the business actually operates — a clause covering the entire world for a local trades business would typically be hard to defend as reasonable.
• What's covered: Typically the specific industry and activities the business actually carried out — not any conceivable future business you might come up with.

What happens if you breach the clause?

The purchase agreement will typically include a liquidated damages clause — a predetermined amount you must pay if you breach the clause, without the buyer first having to prove the specific loss. That makes a breach potentially expensive, even if the new competing activity doesn't actually cause much harm.

Can you negotiate the scope of the clause?

Yes — like the rest of the purchase agreement, the non-compete clause is subject to negotiation. If you already know you'd like to start something new after the sale, say so early in the negotiation, so the clause can be limited to actually protecting what the buyer is paying for — without unnecessarily tying up your future.

Negotiating the terms of a sale, including a non-compete clause? Book a no-obligation call about the Advisory & Mediation package, or read more about what the purchase agreement should generally include.