Business Asset Sale - Non-compete enforceable if new corporation created?

[SHgNJH]

What is the name of your state (only U.S. law)? Minnesota

I sold the assets of my corporation in June 2014. My company is based in the UK and I am a US citizen (shareholder / directory of said corp) who lives in the UK. My company sold the assets to a US company. The legal jurisdiction defined in the contract is Minnesota. The asset purchase agreement had a non-compete clause in it which is the following:

Seller agrees that neither Seller, nor any of its shareholders, officers or, directors, has, or for a period three years from the Closing will have, an equity interest or any other interest in any other entity in the same or similar businesses of the Business.​

As the shareholder / director of the business would this actually be enforceable if I created a different corporation and competed in a similar business under the new corporation?

If I create a new corporation, of course it would not be related to any agreement the old corporation had. So, at the corporate level the new corporation would not be liable. However, as an individual with US citizenship (who lives in the UK and not the US), would this be enforceable at a personal level due to me being a shareholder / director of the old corporation? The asset purchase agreement was corp to corp and signed by me as the capacity of the director. Regarding the business nature, it was an ecommerce store, so even the company operates in the US and I am in the UK there may be overlapping geography.

 

[quincy]

What is the name of your state (only U.S. law)? Minnesota

I sold the assets of my corporation in June 2014. My company is based in the UK and I am a US citizen (shareholder / directory of said corp) who lives in the UK. My company sold the assets to a US company. The legal jurisdiction defined in the contract is Minnesota. The asset purchase agreement had a non-compete clause in it which is the following:

Seller agrees that neither Seller, nor any of its shareholders, officers or, directors, has, or for a period three years from the Closing will have, an equity interest or any other interest in any other entity in the same or similar businesses of the Business.​

As the shareholder / director of the business would this actually be enforceable if I created a different corporation and competed in a similar business under the new corporation?

If I create a new corporation, of course it would not be related to any agreement the old corporation had. So, at the corporate level the new corporation would not be liable. However, as an individual with US citizenship (who lives in the UK and not the US), would this be enforceable at a personal level due to me being a shareholder / director of the old corporation? The asset purchase agreement was corp to corp and signed by me as the capacity of the director. Regarding the business nature, it was an ecommerce store, so even the company operates in the US and I am in the UK there may be overlapping geography.

Three years might not be enforceable. I suggest you have the contract (in its entirety) reviewed personally by an attorney in the UK.

 

[LdiJ]

Three years might not be enforceable. I suggest you have the contract (in its entirety) reviewed personally by an attorney in the UK.

I think it needs to be reviewed by a US attorney.

The legal jurisdiction defined in the contract is Minnesota

However, if the OP would be a significant shareholder of the new corporation I do believe that would bind the new corporation to the agreement.

OP, why did you sell the business if you wanted to continue on doing similar business?

 

[quincy]

I think it needs to be reviewed by a US attorney.



However, if the OP would be a significant shareholder of the new corporation I do believe that would bind the new corporation to the agreement.

OP, why did you sell the business if you wanted to continue on doing similar business?

UK law will apply to SHgNJH because his new business will operate out of the UK. Whether a US non-compete agreement will be recognized in the UK and enforceable there should be discussed with a UK attorney. Depending on the assets sold and the terms of the sale (and other facts that need to be personally reviewed) there is a good chance that a 3 year limit would not be enforceable even in the US.

 

[LdiJ]

UK law will apply to SHgNJH because his new business will operate out of the UK. Whether a US non-compete agreement will be recognized in the UK and enforceable there should be discussed with a UK attorney. Depending on the assets sold and the terms of the sale (and other facts that need to be personally reviewed) there is a good chance that a 3 year limit would not be enforceable even in the US.

I agree about the three years, although non-compete case law is a little different when its a contract between the seller and buyer of a business. This is not an employer/employee situation. The purpose of a non-compete is to avoid a seller collecting on the sale of a business and then turning around and basically recreating a new business, with a new name, and then poaching the customers of the former business.

Without knowing what kind of online business it was, where the customers were located and how much competition would make a difference its difficult to comment.
However, if the OP gets sued, its going to be in Minnesota as the OP specifically gave/accepted Minnesota jurisdiction over the non-compete. Since the OP gave/accepted Minnesota jurisdiction then IF Minnesota needed the assistance of the UK courts in order to enforce a court decision, the UK courts would pretty much have to cooperate under the business sections of the Hague Convention.

 

[quincy]

I agree about the three years, although non-compete case law is a little different when its a contract between the seller and buyer of a business. This is not an employer/employee situation. The purpose of a non-compete is to avoid a seller collecting on the sale of a business and then turning around and basically recreating a new business, with a new name, and then poaching the customers of the former business.

Without knowing what kind of online business it was, where the customers were located and how much competition would make a difference its difficult to comment.
However, if the OP gets sued, its going to be in Minnesota as the OP specifically gave/accepted Minnesota jurisdiction over the non-compete. Since the OP gave/accepted Minnesota jurisdiction then IF Minnesota needed the assistance of the UK courts in order to enforce a court decision, the UK courts would pretty much have to cooperate under the business sections of the Hague Convention.

Please tell me what will compel our poster to come to the US to be sued? Why would he, if the UK does not enforce non-compete agreements?

 

[LdiJ]

Please tell me what will compel our poster to come to the US to be sued? Why would he, if the UK does not enforce non-compete agreements?

Come on Quincy...I am sure you know how contracts work. The poster has accepted US jurisdiction in this matter under the contract. (Minnesota to be precise). Therefore jurisdiction is set in Minnesota and any refusal to cooperate with the process would result in a default ruling. Under the business portions of the Hague Convention the UK would virtually have to cooperate with any ruling out of Minnesota.

This is about as basic as it gets when it comes to international contracts and business sales. This is not a situation where an individual is being sued by a landlord or credit card company etc., in the US when the individual is located abroad. This is an individual who sold a business with Minnesota as the contracted jurisdiction for any disputes under the contract. Again, this poster has already agreed to be sued in the US. His/her agreement is not needed again later.

 

[quincy]

Come on Quincy...I am sure you know how contracts work. The poster has accepted US jurisdiction in this matter under the contract. (Minnesota to be precise). Therefore jurisdiction is set in Minnesota and any refusal to cooperate with the process would result in a default ruling. Under the business portions of the Hague Convention the UK would virtually have to cooperate with any ruling out of Minnesota.

This is about as basic as it gets when it comes to international contracts and business sales. This is not a situation where an individual is being sued by a landlord or credit card company etc., in the US when the individual is located abroad. This is an individual who sold a business with Minnesota as the contracted jurisdiction for any disputes under the contract. Again, this poster has already agreed to be sued in the US. His/her agreement is not needed again later.

The UK looks at most non-competes as a restraint of trade. So, again, what will compel a UK resident to come to the US to be sued, knowing a UK court will likely not enforce a US agreement or judgment?

 

[LdiJ]

The UK looks at most non-competes as a restraint of trade. So, again, what will compel a UK resident to come to the US to be sued, knowing a UK court will likely not enforce a US agreement or judgment?

I give up. You are completely ignoring the fact that there is an international treaty in place which supercedes ordinary UK law. You are also completely ignoring the fact that she has already agreed to accept any ruling from a Minnesota court. If you really want to play things that way, and potentially damage a poster just to play that way, then I am bowing out.

 

[quincy]

I give up. You are completely ignoring the fact that there is an international treaty in place which supercedes ordinary UK law. You are also completely ignoring the fact that she has already agreed to accept any ruling from a Minnesota court. If you really want to play things that way, and potentially damage a poster just to play that way, then I am bowing out.

Seriously? You are out of your depth here, LdiJ.

You will want to read Article 20(1) of Section 5 of Council Regulation (EC) 44/2001 and what it mandates.This regulation forces a foreign corporation to litigate in the place of domicile of the breaching party.

The Regulation supersedes choice of jurisdiction clauses in contracts.

SO, once again I will advise our poster to seek legal assistance in the UK because it will be UK laws that apply.