In the hope of expanding their businesses and opening up new horizons, many owners of growing companies are both keen and flattered when an experienced industry player shows interest in purchasing a substantial stake their business entity. Oftentimes, apart from the opportunities and prospects that come with a substantial capital injection, the advantages of bringing in knowledge from a seasoned industry player can be a very attractive.
Of course, when taking on new partners who have worked (and perhaps still have a financial interest) in similar businesses, vendors should tread carefully to ensure they are not putting at risk their valuable know-how, goodwill and intellectual property in bringing in and educating potential future competitors.
Whilst most of the time new partners are well intentioned, in our experience, when relationships breakdown and partners then leave the business, there is often the risk that in venturing off to something new they can take and/or utilise valuable know-how in order to get a foot hold in an industry through a copycat business.
An ideal way to safeguard your business (and perhaps also test the commitment of your incoming business partner) is through carefully drafted restraint and intellectual property protection clauses in your Shareholders’ Agreement (and employment contracts).
Such clauses should seek to effectively prevent parties from:
- being involved in or having an interest in competing businesses; and
- luring away clients, employees, suppliers and other key contacts,
both during the time in which they are shareholders of a company and for an agreed period after they cease to be a shareholder.
In addition, well crafted intellectual property and confidentiality provisions should seek to effectively define the company’s valuable intangible property and prevent parties from making use or substantially replicating such items in a competing business.
If you are taking on a new partner or shareholder and would like some guidance in ensuring your valuable goodwill, know-how and intellectual property is protected, contact a member of our team for on-point, practical guidance.
Joseph Carneli, Senior Associate