Restrictive covenants in a share purchase agreement are provisions that limit the actions of the seller post-closing in order to protect the buyer`s investment. These covenants are put in place to ensure that the seller does not take any actions that could potentially harm the company or the buyer`s interests.
There are several types of restrictive covenants that can be included in a share purchase agreement. These include non-compete clauses, non-solicitation clauses, confidentiality clauses, and non-disparagement clauses.
Non-compete clauses prevent the seller from competing with the buyer`s business in the same industry for a set period of time. This ensures that the seller does not set up a competing business and take away customers or clients from the buyer.
Non-solicitation clauses prevent the seller from soliciting the buyer`s employees, customers, or suppliers for a set period of time. This protects the buyer`s relationships and ensures that the seller does not poach key employees or clients.
Confidentiality clauses prevent the seller from disclosing confidential information about the company or the transaction. This protects the buyer`s trade secrets and ensures that sensitive information is not shared with competitors.
Non-disparagement clauses prevent the seller from making negative or disparaging comments about the company or the buyer. This ensures that the seller does not damage the company`s reputation or the buyer`s investment.
It is important to note that restrictive covenants must be carefully drafted to ensure that they are enforceable. They must be reasonable in scope and duration, and must not be overly burdensome on the seller. If a restrictive covenant is found to be overly restrictive or unreasonable, it may be deemed unenforceable by a court.
In conclusion, restrictive covenants in a share purchase agreement are an important tool for protecting the buyer`s investment. By limiting the actions of the seller post-closing, these covenants ensure that the buyer`s interests are protected and the company`s value is maintained. However, it is important to ensure that these covenants are reasonable and enforceable in order to avoid potential legal challenges.
