What are the typical Covenants or Restrictions when you sell your business?

As selling shareholders, you likely have no intention of setting up a similar business to the one you have just sold. Your buyer will nevertheless be keen to ensure that you are restricted from doing so.

To this end, and as part of the Share Purchase Agreement (SPA), you will be asked to confirm that for an agreed period (typically up to three years) you will not look to solicit employees, approach key customers, set up a competing business or hold shares in a competing business, etc. The list of covenants specified by buyers can be extensive.

Importance of disclosure

As shareholders, you probably know the staff, customers and your wider market extremely well. The buyer will naturally want to protect the business they are about to buy and their investment. Any buyer will be keen to ensure the key value drivers are preserved and any risk minimised.

In some cases, a selling Shareholder might already own all or part of another business that may be considered aligned or competitive. This is likely to give the buyer cause for concern. Therefore, it may be sensible to disclose this information to buyers early. It may be possible to carve this other interest out from any Covenants, if handled correctly.