Written by A restraint of trade clause is a common provision found in shareholder agreements. It restricts shareholders from engaging in activities that may be in direct competition with the company in which they hold equity. Such clauses are aimed at protecting the company`s interests and minimizing the potential for conflicts of interest.
A restraint of trade clause restricts shareholders from engaging in certain activities that may be deemed harmful or detrimental to the company. This can include working for a competitor, starting a competing business, distributing similar products, and soliciting customers of the company. The clause can be limited to a particular geographic region or industry, or it can apply broadly to any industry or location.
The enforceability of a restraint of trade clause in a shareholder agreement is subject to various factors, including the reasonableness of the clause`s scope and the impact on the shareholder`s ability to earn a livelihood. In general, courts will only enforce a restraint of trade clause if it is considered necessary to protect the legitimate interests of the company.
A restraint of trade clause can be an effective tool for protecting a company`s interests. It can prevent shareholders from engaging in activities that could harm the company`s reputation or financial stability. However, it is important to ensure that the clause is reasonable and does not unnecessarily restrict a shareholder`s ability to earn a living.
If you are considering including a restraint of trade clause in your shareholder agreement, it is important to seek the advice of an experienced attorney. They can help you draft a clause that meets your needs while also complying with applicable laws and regulations.
In conclusion, a restraint of trade clause can be an important provision in a shareholder agreement. It can help protect the company`s interests and minimize the potential for conflicts of interest. However, it is important to approach the inclusion of such a clause with caution and seek professional advice to ensure it is reasonable and enforceable.