As the buyer of a business, not only are you concerned about the business you are buying, but also the business' ability to maintain its market share and earn revenues. A well documented non-competition agreement between the buyer and seller will help to protect this interest. Such a document is not just for the sake of reaching an understanding between the buyer and seller, it is essential to keep the existing market share that is being acquired from being lost in the future. Non-competition agreements are generally enforced by the courts if they are not found to be too restrictive in trade or unreasonable in terms like geographic area and duration. Speaking of protecting the business, the price the parties agreed to should also be protected.
Businesses have a way of occasionally changing.
The source of change can be from a new competitor within the industry or the economy itself, causing a business to soar or stumble during the period of negotiation, and directly affecting the price originally agreed on by the parties. In the event that such a change in business should occur, the parties should document a mathematically based formula for recalculating the purchase price of the business, or even perhaps offer the buyer the option to back out if the business fails below a certain predetermined point. Finally, a hold harmless or indemnification agreement should be well documented. Such an agreement can offer protection to both parties for certain losses arising after the sale. Terms of this sort of an agreement like total dollar amounts, threshold amounts, time limits, or any collateral should be included in the documents.