Legal Question in Business Law in California

All depends on what work you want it to do. It sounds like you don't want this website competing with you, but the seller would have no reason to keep the website if he didn't want to use it to compete with you or to be able to sell it separately to someone who will use it to compete with you. So it doesn't sound like the two of you would be able to come to a non-compete agreement that would satisfy both of you.

You need to provide more information -- such as, how much is the web site used for ongoing tax work. If it's not integral, and you're only concerned that he's going to compete with you for the existing client base, then possibly a non-compete agreement coupled with the asset sale will be okay. But, you need to analyze what keeps the clients coming back for the services, and how much of that is dependent on the web site.

In addition to the other attorney answers, it sounds like the seller is only selling part of the business (existing clients) and not the growth part (website). Doesn't make any sense to buy one without the other. Tax clients are fickle - you need a constant influx of new clients in a tax business. Consult with a good business attorney in your area for specific advice.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

Of course, if the client list is fairly priced for what it is, this deal may work satisfactorily, but, wholly aside from the non-compete clause issue, this proposed transaction sounds like a bad deal. You aren't buying a business, you're just getting a list of past customers, who are less than likely to contact a stranger at an unfamiliar Web location. Would you buy a restaurant if all you got was the list of past patrons, but didn't get the chef or the location?

OK, returning to the non-compete issue. When the price of a business includes a charge for its goodwill, which is sometimes defined as "the value of the expectation of repeat business," the buyer may lawfully obtain an enforceable agreement from the seller that the seller will not compete with the buyer. Such agreements are still limited to restrictions on competition that are reasonable as to duration and geography.

Given that, I'd think a non-compete agreement lasting around three to five years and requiring the seller to refrain from dealing with past clients on the list sold to you, and perhaps new clients whose business or residential addresses are within X miles of you, and including your right to inspect his records to verify compliance, might be adequate.

The value of "X" should depend upon the size of the community and trading area. In central L.A., maybe four miles is enough. In rural Riverside County, maybe you'd need 50 miles for an adequate buffer zone.

If the seller has any intention of engaging in the same business, and near you, I wouldn't buy at all, noncompete clause or not. If the seller has no intention of engaging in the same business nearby, agreeing to such a non-compete clause should not present a problem.

Still, I wouldn't pay much for a client list for a professional service. Client loyalty may not be transferable. The list will become your list of prospects, not your list of clients.