Is the seller allowed to compete with me after purchasing the business?

Yes, in principle, the seller is allowed to start their own business or work for a competitor after the acquisition – entrepreneurship is free – but that freedom is not unlimited. Even without an agreed non-compete clause, the seller may not engage in unfair competition against you as the buyer: the requirements of reasonableness and fairness (Article 6:248 of the Dutch Civil Code) set limits to this. If you want real certainty, include a clear non-compete clause with a penalty clause in the acquisition agreement. Below, you can read exactly what the seller is and is not allowed to do, and how to strengthen your position as a buyer in advance.

Competition after acquisition: what is and isn't the seller allowed to do?

When you buy a business, you pay not only for the inventory and stock, but above all for the customers, brand recognition, and goodwill. It cannot be the intention, then, that the former owner takes all that knowledge and those relationships to work for a competitor. Or even worse: that he immediately sets up a competing company himself and takes your customers with him.

It is therefore logical that this right is limited in the acquisition agreement. Nevertheless, even without such a formulated non-compete clause, the seller does not have complete freedom. The law and case law protect the buyer to a certain extent against unfair competition. In short:

• Allowed: starting a new business, working in the same industry, and simply doing business with customers who approach the seller of their own accord.
• Not permitted: systematically and deliberately competing with the sold business and undermining the goodwill for which you paid – even without a non-compete clause.

What is a non-compete clause in an acquisition?

A non-compete clause is an agreement in the acquisition contract in which the seller commits not to engage in competing activities for a certain period and within a specific geographical area. It protects the goodwill, customer base, and know-how for which you, as the buyer, have paid. It is often coupled with a penalty clause: in the event of a violation, a pre-agreed amount is immediately due. Do not confuse this with the non-compete clause in an employment contract – that has its own, stricter legal rules.

Unfair competition is prohibited even without a clause

The landmark ruling in this type of case is Kolkman/Cornelisse (Supreme Court, July 1, 1997, ECLI:NL:HR:1997:AG1569). The facts: Mr. Kolkman decided to sell his insurance agency for health reasons. Cornelisse, a field representative of the agency, took it over, and Kolkman himself ended up on the payroll. When Kolkman was later dismissed, he made several attempts to poach clients from Cornelisse.

The Supreme Court ruled that the absence of a non-compete clause does not constitute a license to compete with the acquiring party. The requirements of reasonableness and fairness prohibit this. In principle, anyone who sells their business may not continue the same activities in the immediate vicinity and thereby systematically compete with the transferred business.

However, the protection of the buyer was limited. The limitation must be reasonable in view of the circumstances – such as the local reputation and the nature of the business – and in practice is often limited in terms of duration and geographical scope (a radius around the place of establishment). An unlimited prohibition is inappropriate.

Which behaviors constitute unfair competition?

Whether competition is unlawful depends on the circumstances of the case. In practice, it often involves a combination of the following elements:

• Systematically approach customers of the sold company;
• Benefiting from confidential knowledge, customer databases, or trade secrets;
• Continue the same activities in the immediate vicinity ;
• Deliberately eroding the goodwill for which the buyer paid.

Not all competition is prohibited. In principle, the seller is allowed to conduct business normally; only when he deliberately undermines the value of what he has just sold does he cross the line into unlawful conduct.

Difference between an asset/liability transaction and a share transfer

Whether and how you can bind the seller depends in part on the form of the acquisition. Broadly speaking, there are two routes, each with its own points of attention regarding competition:

• Asset/liability transaction: you purchase the business itself (customers, contracts, inventory, goodwill). The seller remains the owner of their legal entity and can, in principle, start over. A non-compete clause with the selling entrepreneur is essential here.
• Share transfer: you purchase the shares of the company. The company is transferred as a whole, but the selling shareholder can still compete outside of it. Therefore, explicitly stipulate in the purchase agreement that the seller, and any affiliated parties, refrain from competition.

In both cases, the following applies: without a clear agreement, you fall back on the open standard of reasonableness and fairness – usable, but less strict than a well-formulated clause.

Why a non-compete clause remains important

Legal protection based on reasonableness and fairness is valuable, but difficult to substantiate. As a buyer, you must demonstrate that the seller's behavior crosses the line, which often leads to disputes and legal proceedings. Therefore, it remains highly advisable to include an explicit non-compete clause in the acquisition agreement during the transfer of the business

A good non-compete clause has three advantages:

• Clarity: it is stated in writing beforehand what the seller is not allowed to do, for what period, and in which area;
• Deterrent effect: the salesperson thinks twice before approaching customers;
• Easier enforcement: you do not first have to prove that the competition is unlawful.

That deterrent effect becomes even stronger if you attach a penalty clause to it. With a penalty clause, you do not have to precisely quantify the damages suffered: in the event of a violation, a pre-agreed amount is due. That saves a great deal of burden of proof and dispute.

When is a non-compete clause legally valid?

A non-compete clause and a penalty clause are not automatically valid without limitation. A clause may not go further than necessary to protect the buyer's interests, and may not unduly restrict the seller's ability to work or conduct business. A judge may moderate an overly broad clause or set it aside.

Therefore, pay attention to balanced wording on these points:

• Duration: a reasonable period, aligned with the time you need to take over the customer relationships;
• Geographic scope: an area that corresponds to the field of activity of the company;
• Scope: which specific activities and which type of customers the clause affects;
• Fine: an amount that is realistic and proportionate.

What to do in the event of a competition dispute following an acquisition?

An acquisition is often the scene of disputes, especially if the seller fails to adhere to the agreements or if you discover after the purchase that there were “skeletons in the closet.” In such cases, you refer back to the agreements made to determine your legal position. A practical approach:

1. Gather evidence: document which customers were approached, what communications were made, and when this occurred;
2. Review the agreements: the letter of intent, the acquisition agreement, and any appendices determine your room for maneuver;
3. Send a substantiated cease and desist letter: often the unwanted behavior stops after just a formal letter from a lawyer;
4. Consider legal action: if an amicable settlement is unsuccessful, you can demand performance, an injunction, or the agreed penalty.

So, even without a non-compete clause, you are not left empty-handed, but with a good clause, you are in a significantly stronger position. Are you unsure about your position? Our legal experts will assess your situation and determine the best next step together with you.

Frequently asked questions about competition after an acquisition

Is the seller allowed to start a new business in the same industry after the sale?

In principle, yes. Entrepreneurship is free. However, the seller may not systematically and unfairly compete with the sold business, for example by starting the same activities nearby and specifically poaching old customers. If he does so, it may be unlawful, even without a non-compete clause.

Does a non-compete clause apply if nothing has been agreed?

There is no formal clause, but there is a lower limit based on the requirements of reasonableness and fairness. The seller may not engage in unfair competition against the buyer that erodes the recently sold goodwill. The precise limit depends on the circumstances, such as distance, the passage of time, and the manner in which customers are approached.

How long may a non-compete clause last after an acquisition?

There is no fixed statutory time limit for this. The duration must be reasonable and necessary to protect your interests as a buyer. A restriction that is too long or too broad may be moderated or disregarded by the court. Therefore, have the time limit tailored to your specific situation.

Does the non-compete clause also apply to a share transfer?

A non-compete clause is also common and advisable in a share transaction. The buyer acquires the company, but the selling shareholder can still compete outside of that context. Therefore, explicitly stipulate in the share purchase agreement that the seller (and any affiliated parties) refrains from competition.

What is the difference between a non-compete clause and a non-competition clause in an employment contract?

A non-compete clause in an acquisition falls under general contract law and is assessed against the principles of reasonableness and fairness. A non-compete clause in an employment contract has its own, stricter statutory rules that provide the employee with additional protection. Therefore, do not evaluate an acquisition clause using the standards of employment law.

What is the advantage of a penalty clause in a non-compete clause?

In the event of a violation, a pre-agreed amount is due, without you having to prove or estimate your damages. This makes enforcement simpler and has a strong deterrent effect. However, the fine must be proportionate; otherwise, a judge may reduce it.

Can I reverse the acquisition if the seller withheld information?

Sometimes. If the seller concealed essential matters, annulment, damages, or reliance on warranties under the agreement may be applicable. This depends heavily on the facts and the agreements made; therefore, have your situation legally assessed.

Have your acquisition agreement drafted by MKB Juristen

A strong acquisition starts with sound agreements. If you want to prevent the seller from competing with you after the purchase, have a watertight non-compete and penalty clause included in your acquisition agreement. Our legal experts support you in drafting and reviewing the acquisition agreement and advise you on corporate law regarding acquisitions.

Is there already a conflict with the seller? Even then, we will help you move forward with a well-founded approach. Schedule a no-obligation intake meeting and discover how to stand your ground.