Non Compete Clause In Shareholders Agreement for the United Kingdom

Non Compete Clause In Shareholders Agreement Template for England and Wales

A non-compete clause within a shareholders agreement is a legally binding provision under English and Welsh law that restricts shareholders from engaging in competitive activities against the company. The clause typically defines the scope of prohibited activities, geographic limitations, and duration of restrictions. It must be carefully drafted to ensure enforceability under competition law while protecting legitimate business interests.

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What is a Non Compete Clause In Shareholders Agreement?

A Non-Compete Clause in Shareholders Agreement is a crucial protective mechanism used when shareholders have access to sensitive business information or could pose competitive threats. Under English and Welsh law, these provisions must balance legitimate business protection with reasonable restrictions on trade. The clause typically appears in situations involving founder exits, investment rounds, or company sales, where shareholders might otherwise use their insider knowledge to compete. It requires careful drafting to ensure enforceability while maintaining compliance with competition laws and common law principles.

What sections should be included in a Non Compete Clause In Shareholders Agreement?

1. Parties: Identification of the shareholders and company involved in the non-compete agreement

2. Background: Context of the agreement, shareholding structure, and business relationship background

3. Definitions: Key terms used throughout the agreement including 'Restricted Business', 'Territory', 'Confidential Information'

4. Scope of Restrictions: Detailed description of prohibited activities and competitive actions that are restricted

5. Duration: Time period for which the non-compete restrictions apply

6. Geographic Area: Territorial scope of restrictions and defined areas where competition is prohibited

7. Exceptions: Permitted activities and circumstances where restrictions do not apply

What sections are optional to include in a Non Compete Clause In Shareholders Agreement?

1. Garden Leave Provisions: Additional restrictions during notice period, typically used for executive shareholders

2. Cascading Provisions: Alternative restrictions of varying scope to increase enforceability if primary restrictions are deemed too broad

3. Non-Solicitation Provisions: Additional restrictions on approaching customers, employees, or suppliers

What schedules should be included in a Non Compete Clause In Shareholders Agreement?

1. Schedule 1 - Restricted Business Activities: Detailed list of specific prohibited activities and business operations

2. Schedule 2 - Restricted Territories: Comprehensive list of geographic areas where restrictions apply

3. Schedule 3 - Excluded Activities: List of permitted activities and exceptions exempt from the non-compete restrictions

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

England and Wales

Publisher

Genie AI

Cost

Free to use
Industries

Competition Act 1998: Primary UK legislation governing competition law that prohibits anti-competitive agreements and abuse of dominant market position. Must be considered to ensure non-compete provisions don't violate competition regulations.

Enterprise Act 2002: UK legislation that provides the framework for merger control and market investigations. Relevant for ensuring non-compete clauses don't create anti-competitive market conditions.

Article 101 TFEU (retained EU law): Retained EU law in UK that prohibits agreements which prevent, restrict or distort competition. Must be considered when drafting non-compete provisions that might affect trade.

Nordenfelt Doctrine: Common law precedent from Nordenfelt v Maxim Nordenfelt [1894] establishing the reasonableness test for restraint of trade. Non-compete clauses must be reasonable in duration, geographic scope, and scope of activities.

Companies Act 2006 (Directors' Duties): Sections 170-177 outline directors' statutory duties. Relevant when shareholders are also directors and subject to non-compete restrictions.

Companies Act 2006 (Shareholders' Rights): Provisions governing shareholders' rights and obligations that must be balanced against non-compete restrictions.

Contract Law Principles: Common law principles governing contract formation, consideration, and certainty of terms that must be satisfied for non-compete clauses to be valid.

Legitimate Business Interests Test: Legal principle requiring that non-compete restrictions must protect legitimate business interests rather than simply prevent competition.

Public Policy Considerations: Legal requirement to balance freedom to trade against protection of business interests, ensuring restrictions are not contrary to public policy.

Severability Principle: Legal doctrine allowing courts to sever unenforceable parts of non-compete restrictions while maintaining enforceable elements, important for drafting survival provisions.

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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