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Barrister, Attorney
Category: Business Law
Satisfied Customers: 37791
Experience:  16 years practicing attorney, JD, BA, MBA
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Is a non compete clause valid in California between two

Customer Question

is a non compete clause valid in California between two owners of a corporation that are 50/50 share holders ?
Submitted: 2 years ago.
Category: Business Law
Expert:  Barrister replied 2 years ago.

Hello and welcome! My name is ***** ***** I will try my level best to help with your situation or get you to someone who can.


In California restraints on trade, also known as non-compete agreements, are illegal and void for employees and independent contractors. However, the law doesn't make non-compete agreements illegal for owners of a business, corporation, LLC, or partnership.


Whether it would be enforceable would depend on whether there is a legitimate business interest to protect such as goodwill, trade secrets, or confidential information like customer lists. This is covered under CA Business and Professions Code 16601 which states:


Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells

(a) all or substantially all of its operating assets together with the goodwill of the business entity,

(b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or

(c) all of the ownership interest of any subsidiary,

may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.