Is Your New Business Clear of Non-compete Clause Challenges?
Starting your own new business because your old employer opted not to pursue a market opportunity? Be careful to check with a lawyer about non-compete laws and your employment contract’s non-compete clause. Large companies often caught between pursuing their traditional markets and risking a change of focus to take advantage of new, possibly lucrative, markets may balk at the opportunity. Sometimes companies may spin off a small company to pursue tangential markets, but how does an entrepreneur take advantage of those opportunities that are passed over? Entrepreneurs pursuing business opportunities need to keep several things in mind, along with the needs of raising operating capital, when they leave one company to start another.
Know what your state’s non-compete laws are. Some states like Montana and California lean heavily towards laws against restraint of trade and the state courts do not enforce non-compete clauses in employment agreements. However, always check with your attorney, since contracts that cross state lines may include “choice of law” provisions which dictate under which state’s laws the contracts are enforced.
Always keep in mind that other state and federal laws apply regarding what information you carry and use in your new business. Strictly forbidden is taking any assets, including trade secrets, or data from your former employer. Also contacting customers or clients while still employed and drumming up business for your new company is usually illegal and it is always bad form.
Another area to pay attention to is intellectual property. If the core asset of your new business is an idea you had on your off-hours while still employed, make sure you have the process documented in such a way to protect your interests. Technology companies tend to be very covetous of any financially rewarding ideas their employees and former employees have.
It is best to try to create a win-win relationship between your employer and your new company – see them as a possible client if your business is complementary to their business pursuits. Often larger companies may even take a minority investment position or loan start-up capital with plans to buy your new company if it grows to a certain size and revenue. Leaders in larger companies realize that their bureaucratic structures tend to stifle new enterprises. A proven way to pursue an opportunity is to allow maximum freedom to invent and create that is best done by a small business.
Before approaching your employer with the business proposition, consult your attorney to see how your new business idea stands in the light of non-compete agreements and laws and then work out a strategy and talking points with your attorney. Finally, together, draft a proposed Letter of Intent that includes the guidelines for how the business will proceed and review any concerns the employer may have on the future impact of your new business.
New businesses are exciting and intense affairs as it is, just make sure you correctly close the backdoor to your former employment so you are in the clear with all non-compete agreements and laws that might hinder the growth of your company. And as always, don’t construe general information regarding legal matters as legal advice, consult your attorney for the legal advice that applies to your employment situation, new business idea and state laws.
US Business Finance Corp specializes in helping new businesses get the start-up capital and operating capital. For help with your small business loan, credit card merchant account processing service, or business cash advance, please contact our team of funding solution specialists.
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