Non-Compete Agreements When Selling a Business in Florida

In nearly every Florida business sale, the buyer will require the seller to sign a non-compete agreement (also called a covenant not to compete or restrictive covenant). This is not optional from the buyer's perspective. When a buyer pays for the goodwill of a business, including its customer relationships, reputation, and market position, the buyer needs assurance that the seller will not immediately open a competing operation and recapture that value.

For sellers, the non-compete is one of the most important provisions to negotiate carefully. An overly broad non-compete can prevent you from working in your industry for years. A well-drafted one protects the buyer's investment while preserving your ability to earn a living.

Why Non-Competes Are Standard in Business Sales

A business's goodwill is often its most valuable asset. Goodwill includes the customer base, brand recognition, supplier relationships, and operational reputation that generate revenue beyond the value of tangible assets alone. When a buyer pays a premium for goodwill, the non-compete ensures the seller cannot undermine that investment.

Without a non-compete, there is nothing preventing the seller from opening an identical business across the street the day after closing. This risk would drastically reduce the price any buyer is willing to pay.

Florida Law on Non-Competes: Section 542.335

Florida Statutes Section 542.335 governs the enforceability of restrictive covenants, including non-competes in business sales. The statute establishes that a non-compete is enforceable if it:

• Is in writing and signed by the person against whom enforcement is sought
• Is supported by a legitimate business interest
• Is reasonable in time, area, and line of business

The sale of a business, including its goodwill, is explicitly recognized as a legitimate business interest under the statute. This means courts are generally more willing to enforce non-competes tied to business sales than those in employment contexts.

Presumptions of Reasonableness

Florida law creates specific presumptions about what constitutes a reasonable duration for non-competes connected to a business sale:

• Up to 7 years: Presumed reasonable for non-competes entered into in connection with the sale of all or part of a business, any ownership interest, or the assets of a business
• Over 7 years: Presumed unreasonable, and the burden shifts to the party seeking enforcement to prove it is necessary

In practice, most business sale non-competes are negotiated for 3 to 5 years, though the specific duration depends on the industry, the seller's role, and the geographic market.

Key Terms Sellers Should Negotiate

Sellers should work with their attorney to negotiate the following aspects of the non-compete:

Duration

While up to 7 years is presumed reasonable under Florida law, shorter periods are common and often appropriate. The duration should reflect how long it would realistically take the buyer to establish their own relationships and reputation in the market.

Geographic Scope

The restricted area should be limited to the actual market where the business operates. If the business serves only Sarasota and Manatee counties, a non-compete covering all of Florida may be unnecessarily broad. However, for businesses with statewide or national reach, a broader geographic scope may be justified.

Line of Business

The non-compete should define the restricted activity narrowly. If you sold a restaurant, the restriction should prevent you from opening a competing restaurant, not from working in the food industry generally. Overly broad activity restrictions are more likely to be challenged.

Exceptions and Carve-Outs

Sellers should negotiate exceptions for:

• Passive investments (owning stock in a competing public company)
• Activities in unrelated industries
• Consulting work that does not directly compete
• Activities outside the restricted geographic area

Purchase Price Allocation and the Non-Compete

In an asset sale, a portion of the purchase price is typically allocated to the covenant not to compete for tax purposes. This allocation matters because:

• For the seller: Amounts allocated to the non-compete are taxed as ordinary income, not capital gains
• For the buyer: The non-compete can be amortized over 15 years as a Section 197 intangible

Sellers generally prefer a lower allocation to the non-compete (to maximize capital gains treatment), while buyers prefer a higher allocation (for amortization benefits). This allocation must be agreed upon in the purchase agreement and reported consistently on IRS Form 8594 by both parties.

What Happens If You Violate a Non-Compete?

If a seller violates a non-compete tied to a business sale, the buyer can seek:

• Injunctive relief: A court order requiring the seller to stop the competing activity immediately
• Damages: Financial compensation for lost profits, lost customers, and other harm caused by the competition
• Attorney fees: Florida's non-compete statute allows the prevailing party to recover attorney fees

Courts take non-competes in business sales seriously because the seller received substantial consideration (the purchase price) in exchange for the restriction. This distinguishes them from employment non-competes, where consideration is often less clear.

The FTC Non-Compete Ban Does Not Apply to Business Sales

The Federal Trade Commission's 2024 final rule banning non-compete agreements applies to employment relationships, not to the sale of a business. Non-competes entered into in connection with the bona fide sale of a business entity, its assets, or an ownership interest remain fully enforceable under both federal and Florida law. Read more in our article on the FTC non-compete rule.

How Barnes Walker Helps

At Barnes Walker, Goethe, Perron, Shea, Johnson & Robinson, PLLC, our attorneys negotiate non-compete provisions that are fair, enforceable, and properly scoped. We help sellers understand what restrictions are reasonable, negotiate carve-outs that preserve flexibility, and coordinate with your CPA on tax-optimal purchase price allocation. If you are buying a business, we draft non-competes that protect your investment and hold up in court.

Related: How to Sell a Business in Florida: A Complete Guide | Asset Sale vs. Stock Sale