A contractual obligation whereby the seller commits not to compete with the sold business, directly or indirectly, for a defined period and within a specified geographic scope after closing.
Selling a company and opening another in the same sector the next day — with the same knowledge, contacts, and commercial relationships — would hollow out the transaction. The non-compete clause exists to prevent exactly that: protecting the buyer by ensuring the seller will not destroy the value they have just paid for.
A non-compete clause is a contractual obligation included in the SPA whereby the seller — and usually their related parties — commits not to carry out, directly or indirectly, activities competing with the sold business for a defined period and within a specified geographic scope.
It is a restriction on the seller’s entrepreneurial freedom, justified by the need to protect the transferred goodwill. Without this protection, the buyer would be paying for a business whose principal asset (the seller’s experience, contacts, and know-how) could be turned against them the day after closing.
Defines what activities are prohibited. Must be specific enough to be enforceable but broad enough to protect the business:
Defines where the restriction applies. Must be proportional to the actual market of the sold company:
Defines how long the restriction lasts:
In addition to the seller (individual or entity), the clause typically extends to:
The non-compete clause is usually accompanied by:
For the buyer, non-compete protection is as valuable as the company itself. If the buyer pays 20 million for a distribution company and the seller (who knows every customer personally) opens another distributor the following month, the 20 million evaporates.
For the seller, the clause is a significant limitation on their professional freedom. It must be negotiated carefully to ensure it does not prevent activities that do not genuinely compete with the sold business (for example, passive investments in other sectors).
The founder of a corporate catering company in Madrid sells 100% for 12 million euros. The SPA’s non-compete clause provides:
One year later, the founder opens a restaurant consulting firm. The buyer considers it competitive. After negotiation, the parties agree that consulting does not constitute competitive activity as long as it does not offer direct catering services.
In the Spanish mid-market, 2 to 5 years is standard. The restriction must be proportionate: sufficient to protect the transferred goodwill, but not excessive. Durations beyond 5 years are generally considered disproportionate.
The buyer can claim damages and the contractual penalty agreed in the SPA. They can also seek injunctive relief to stop the competitive activity. Practical enforcement depends on the clarity of the clause and the jurisdiction.
Typically yes. The SPA includes non-compete, employee non-solicitation, and sometimes customer non-solicitation. These are complementary obligations protecting different aspects of the business value.
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