The buyer wants us to roll over 15 percent of our equity into their platform, but they are requiring us to sign a non-compete that prevents us from starting any new business in the industry for seven years if we leave. How do we structure our rollover equity exit and limit the scope of the non-compete to ensure we are not locked out of our own industry forever without a guaranteed buyout?

Question

Tyler Smith · Accepted Answer

A seven-year non-compete tied to a minority rollover equity position is an unacceptable restriction that can destroy your career options. Buyers use these aggressive terms to lock you out of the market while keeping you as a passive passenger in their new entity. To protect yourself, you must negotiate a strict link between your non-compete obligations and your employment status, rather than your equity ownership. First, demand that the non-compete period begins on the date your employment terminates, not the date you sell your remaining rollover equity. Limit the duration to a standard twelve to eighteen months, which is market-rate. Second, narrow the geographic and operational scope of the non-compete to cover only the specific services your company currently offers, rather than the buyer's entire corporate portfolio. Third, build a put option into your shareholder agreement. This option should allow you to force the buyer to purchase your rollover equity at a fair market value if you are terminated without cause or if you resign for good reason. The contract must state that once they buy out your equity, any remaining non-compete restrictions are immediately voided. This structure ensures you are not left holding illiquid shares while being legally barred from earning a living in the industry you built.