To Compete or Not to Compete, That Is the Question

Non-compete agreements have been a troublesome item to understand for many people. However they are relatively straightforward.

A great many people don’t truly understand the ramifications of a
non-compete agreement, but if caught in a situation where the issue
raises its head, they usually get the drift fairly quickly. It all
boils down to the basic fact that a person selling a business agrees
not to compete or participate with the buyer of that business in the
same niche, area, industry or market for a certain period of time.

The long and short of it is this agreement is alternatively referred
to as a covenant not to compete or a non-compete agreement. This
document, provided it meets certain conditions, may be defined as an
acquired intangible asset accruing to the buyer. Be aware that this
means it will be subject to cost recovery requirements from the IRS.

These agreements are far more common than people think, and it is
customary when a business buyer and business seller iron out the terms
of their agreement that they include a non-compete agreement. It’s a
smart thing to do if it may be amortized for cost recovery for federal
tax purposes.

The business of buying an enterprise generally breaks down into
asset classifications: hard and soft assets. The hard assets are things
like the equipment on the premises, etc, and the soft assets are
intellectual property, the goodwill of the business and the non-compete
agreement (often also called a covenant). The difficult task for the
buyer often becomes trying to evaluate the price of the non-compete
agreement. This has to do with the IRS mandating that intangible assets
have to be depreciated over 15 years – much longer than those tangible
assets.

Figuring out precisely what the non-compete agreement is worth is a
headache of monumental proportions if done alone without the expert
guidance of a skilled business attorney. In general the attorney will
assist the buyer in determining how much damage the seller may be able
to inflict on the buyer’s new business without a non-compete agreement.
If the term confusion comes to mind, it’s time to speak with an expert
business attorney and get on with running the business.

To learn more about Austin business attorney Jack Zinda visit Texasbusinessattorneys.net.