As a general rule, non-competition prohibitions are intended to protect sensitive cases, such as confidential information, trade secrets or value, by preventing former employees from disclosing this information to third parties. They also often prevent former employees from recruiting clients or clients of the company or hiring employees. An LLC enterprise agreement can and must set the terms of the non-competition regime if a member decides to sell its value and take into account the fair value of the good incorporating. The enterprise agreement of a limited liability company, which contains a provision for outgoing members to resell their shares in the business for less than fair value – without goodwill – which nevertheless imposes an obligation not to compete, will not support the imposition of a non-compete bond clause. The second and third exceptions, which apply only to the dissolution of a partnership or LLC, allow for the same restriction, even if the transaction does not continue. Often, business owners simply decide to dissolve a business when a major participant retires instead of trying to sue it as it is. However, one or more of the owners may intend to start a similar or competitive business shortly after the dissolution or to work for a similar or competitive business, rather than simply continuing the existing business. In order to prevent an owner from entering the same type of business immediately after dissolution, other owners may require that all or certain owners not be able to create a business or work for a business that would have been competitive with the dissolution transaction by adding a non-competition regime to the dissolution or transaction agreement of the business. In general, non-competition bans are zero in California, although they are valid in many other states. California is a work-friendly state and does not want employers to be able to limit the ability of former workers to earn a living. In most cases, non-competition bans in California are null and void. However, there are three exceptions that deal primarily with the sale or dissolution of a business or partnership.
So you decided to create an LLC and turn your dream into a legitimate business. In the meantime, you`ve probably read many tips on the steps you need to take to formalize your LLC, including developing a business contract. However, most resources do not give you much advice on what should be in this agreement. If the enterprise agreement contains a non-compete regime, a former member may be prevented from operating, directly or indirectly, a similar type of business in competition with the LLC. If the enterprise agreement does not contain such a clause, the former member may compete with the LLC. Complaints about the difference in the treatment of limited liability companies and capital companies under non-compete clauses and exceptions to the Business and Professional Code, Parliament reduced the registration of Section 16602.5 by removing from its text “or a sale of its interest in a limited liability company.”