Non-Competes in the Sale of a Business: Enforceability by State

Only a handful of states put a number on it. Georgia and Tennessee also tie the presumption to the payment period, so a long seller note can stretch the time a court will accept.

In Florida and Tennessee a seller can be held much longer than an employee. Alabama runs the other way, so don't assume the seller rule is always the looser one.

Florida sorts covenants by who signs them. A seller sits near the top, with 3 years presumed reasonable versus 6 months for a former employee.

Most states have no sale-specific statute and rely on a reasonableness test. That means the drafting matters more than the map: a tight area and scope is what holds up.

Florida's rebuttable time presumptions for restrictive covenants (Fla. Stat. § 542.335)

Source: The Florida Senate, Fla. Stat. § 542.335 Valid restraints of trade or commerce. Download as image

States that void most non-competes but allow them in a business sale

Source: California Legislative Information (California Legislature), Cal. Bus. & Prof. Code § 16601; North Dakota Legislative Branch, Century Code chapter 9-08, N.D.C.C. § 9-08-06 In restraint of business void - Exceptions; Federal Trade Commission (Federal Register, via GovInfo), Non-Compete Clause Rule, Notice of Proposed Rulemaking, 88 FR 3482; Minnesota Office of the Revisor of Statutes, Minn. Stat. § 181.988 Covenants not to compete void in employment agreements; Wyoming Legislature, Enrolled Act No. 87 (SF0107), W.S. 1-23-108; Council of the District of Columbia, D.C. Law Library, D.C. Code § 32-581.01 Definitions (Ban on Non-compete Agreements); Washington State Legislature, RCW 49.62.010 Definitions (versions effective until and from June 30, 2027). Download as image

Federal rules that touch a sale-of-business non-compete

Source: Federal Trade Commission (Federal Register, via GovInfo), Non-Compete Clause Rule, Notice of Proposed Rulemaking, 88 FR 3482; Federal Trade Commission (Federal Register, via GovInfo), Non-Compete Clause Rule, Final Rule, 89 FR 38342; Electronic Code of Federal Regulations (eCFR), 16 CFR Part 910, § 910.3 Exceptions; Federal Trade Commission, FTC Announces Rule Banning Noncompetes; Federal Trade Commission, Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule; Legal Information Institute, Cornell Law School, 26 U.S. Code § 197 Amortization of goodwill and certain other intangibles; Internal Revenue Service, Instructions for Form 8594, Asset Acquisition Statement Under Section 1060; Federal Trade Commission (Federal Register), Revision of the Negative Option Rule, Withdrawal of the CARS Rule, Removal of the Non-Compete Rule To Conform These Rules to Federal Court Decisions, 91 FR 6507 (FR Doc. 2026-02866). Download as image

How state law treats a seller's non-compete by state

• 6Statute sets a time limit or presumption
• 15Statute expressly allows or exempts sale covenants
• 30Court reasonableness test; no sale-specific statute confirmed

Is a non-compete enforceable when you sell your business?

Almost always, if it is drafted with some restraint. The FTC noted in 2023 that all states permit seller-buyer non-competes to some degree. The reason is simple. A court looking at an employee's non-compete worries that a worker is being kept from earning a living. A court looking at a seller's non-compete sees someone who was paid, often well, for goodwill, and who is now trying to take it back.

That doesn't mean anything goes. In the 30 jurisdictions where we found no sale-specific statute, judges ask whether the time, area and scope are reasonable and whether the restriction protects the goodwill the buyer actually bought. Say a dry cleaner sells one location and agrees never to work in any service business anywhere in the country. A court could well throw that out. If the same seller agrees to stay out of dry cleaning in the same county for a few years, expect it to stick.

If you are the buyer, this cuts the other way. An overreaching covenant is the one most likely to be thrown out or trimmed, and in some states a judge will strike it rather than rewrite it. Asking for less, and tying it closely to the customers and services you are paying for, is often the safer way to get protection that actually holds up. Spell out the reason for the restriction in the agreement too, since courts look for the goodwill being protected.

How long can a sale-of-business non-compete last?

Six states put a time limit, presumption or formula in a statute. Florida presumes 3 years or less reasonable for a seller and over 7 years unreasonable. Tennessee, for agreements made on or after July 1, 2026, presumes the longer of 5 years or the period the seller is being paid. Georgia uses the same 5-years-or-payment-period test. Louisiana caps a seller at 2 years from the date of sale, and Alabama presumes 1 year or less reasonable for a sale of goodwill. Colorado uses a formula for some minority owners, covered below.

Two things trip people up here. First, a presumption is not a cap. In Florida or Tennessee, a buyer can argue for longer and a seller can argue for shorter; the presumption just decides who has to make the case. Louisiana is different, because its 2 years is a hard limit.

Second, the payment-period rule in Tennessee and Georgia links your non-compete to your earnout or seller note. If you agree to take part of the price over many years, the restriction a court will presume reasonable can run that long too. Sellers who negotiate a stretched payout to get a better price sometimes don't notice they have also stretched their non-compete.

Why do states that ban non-competes still allow them in a sale?

California, North Dakota, Oklahoma and Minnesota void most non-competes, and Wyoming and the District of Columbia have passed broad bans of their own. Each one keeps a carve-out for the sale of a business. The logic is that the ban protects workers, and a seller who cashed out is not in the same position.

The carve-outs have limits worth reading closely. California's covers a seller of goodwill, an owner disposing of all of their ownership interest, or a company selling substantially all of its operating assets, and only for the area where the business operated. If you sell part of your stake and keep the rest, you may not fit.

Ownership size matters in other places too. Washington's carve-out only applies if the signer buys or sells 1% or more of the business, and its near-total ban taking effect June 30, 2027 keeps that rule. Colorado goes further for minority owners who got their shares as pay: the number of years is capped by a formula based on what they received in the sale compared with their cash compensation. Founders, early employees with equity, and anyone being bought out alongside a majority owner should check these rules before assuming the sale exception applies to them.

Does the FTC non-compete ban affect a business sale?

No. The FTC's 2024 rule would have banned most non-competes nationwide, but it exempted bona fide sales of a business. It also dropped the 25% ownership threshold the agency had proposed in 2023. The point is now moot. A federal court set the rule aside on August 20, 2024, the FTC moved to accept that result in 2025, and the rule was removed from the Code of Federal Regulations effective February 12, 2026. State law is what governs your deal.

How is a non-compete treated for taxes in a business sale?

This is where buyers and sellers often want opposite things. The buyer amortizes a non-compete acquired with a business over 15 years under Section 197, no matter how long the covenant actually runs. Both sides report it on Form 8594 in an asset purchase. Money allocated to the non-compete can also be taxed differently for the seller than money allocated to goodwill, so the split is worth a conversation with your accountant before the purchase agreement is final, not after.

What to check before you sign

• Find which state's law governs the agreement and look it up in the table above. If it is Louisiana, anything past 2 years is a problem.
• Make sure the restricted activity matches the business you sold, not every business you might ever run.
• Tie the area to where the business really had customers. A single-county shop does not need a national restriction.
• Check whether the clock starts at closing or at the end of any consulting or employment period with the buyer. Those can stack.
• If you are paid over time, ask what happens to the non-compete if the buyer stops paying. In Tennessee and Georgia, the payment period can lengthen it.
• Read the non-solicit and confidentiality terms next to the non-compete. They often reach further than the headline restriction.
• If you own a small or minority stake, confirm the sale exception covers you under your state's rule.

Sources and method

Every number on this page comes from the sources below, each opened and read on or before October 18, 2026. A second, independent review checked every figure against its source and corrected anything that did not match. 51 of 51 state entries were confirmed; any that could not be are marked "Not yet confirmed" and left out of every count and chart.

1. California Legislative Information (California Legislature), Cal. Bus. & Prof. Code § 16601 (Amended by Stats. 2006, Ch. 495 (current text as read 2026-10-18))
2. North Dakota Legislative Branch, Century Code chapter 9-08, N.D.C.C. § 9-08-06 In restraint of business void - Exceptions (Current chapter PDF as read 2026-10-18)
3. Minnesota Office of the Revisor of Statutes, Minn. Stat. § 181.988 Covenants not to compete void in employment agreements (2023 c 53 art 6 s 1 (current text as read 2026-10-18))
4. Montana Legislature, Mont. Code Ann. § 28-2-704 Exception -- sale of goodwill of business (Montana Code Annotated 2025)
5. South Dakota Legislature, S.D. Codified Laws § 53-9-9 Sale of good will--Seller's agreement with buyer to refrain from carrying on similar business (Current text as read 2026-10-18 (SL 1997, ch 274))
6. Wyoming Legislature, Enrolled Act No. 87 (SF0107), W.S. 1-23-108 (2025 General Session; applies to contracts entered into on and after July 1, 2025)
7. Council of the District of Columbia, D.C. Law Library, D.C. Code § 32-581.01 Definitions (Ban on Non-compete Agreements) (Current text as read 2026-10-18)
8. Washington State Legislature, RCW 49.62.010 Definitions (versions effective until and from June 30, 2027) (Current text as read 2026-10-18)
9. Washington State Legislature, ESHB 1155 (2025-26), Prohibiting noncompetition agreements, session law and bill summary (Signed March 23, 2026 (C 149 L 26); effective June 30, 2027)
10. The Florida Senate, Fla. Stat. § 542.335 Valid restraints of trade or commerce (2026 Florida Statutes)
11. Nevada.Public.Law (reproduction of the Nevada Revised Statutes), NRS 598A.040 Applicability of chapter (Text accessed by publisher May 26, 2025; read 2026-10-18)
12. Texas.Public.Law (reproduction of the Texas statutes), Tex. Bus. & Com. Code § 15.50 Criteria for Enforceability of Covenants Not to Compete (Text accessed by publisher May 26, 2025; read 2026-10-18)
13. Oregon.Public.Law (reproduction of the Oregon Revised Statutes), ORS 653.295 Noncompetition agreements (Current text as read 2026-10-18)
14. State of Tennessee, Secretary of State (Acts of the 114th General Assembly), Public Chapter No. 934 (House Bill No. 1034), covenants not to compete (Passed April 20, 2026; effective July 1, 2026)
15. Alabama Legislature (ALISON), HB352 (2015 Regular Session), engrossed: restrictive covenants (Ala. Code § 8-1-190 et seq.) (2015 Regular Session, engrossed version)
16. U.S. Court of Appeals for the Fifth Circuit, Security Alarm Financing Enterprises, Inc. v. Green, No. 06-30332 (quoting La. R.S. 23:921(B)) (March 2, 2007)
17. Louisiana Law Review (LSU Law Center), Jacob Ecker, Policymaking Without Regard for Policy: Louisiana Business-Sale Noncompetes (March 30, 2015)
18. FordHarrison LLP, Non-Compete News: Georgia Court Interprets Non-Compete Statute's Sale of a Business Provision (September 4, 2019)
19. Hawaii State Legislature, H.B. No. 1090, C.D. 1 (2015), showing existing text of HRS § 480-4(c)(1) (2015 (Twenty-Eighth Legislature))
20. Hinshaw & Culbertson LLP, Frequently Asked Questions About the Illinois Freedom to Work Act (June 9, 2021)
21. Katz Banks Kumin LLP, U.S. Noncompete Agreement Restrictions 50 State Survey (Current as of March 1, 2026)
22. Federal Trade Commission (Federal Register, via GovInfo), Non-Compete Clause Rule, Notice of Proposed Rulemaking, 88 FR 3482 (January 19, 2023)
23. Federal Trade Commission (Federal Register, via GovInfo), Non-Compete Clause Rule, Final Rule, 89 FR 38342 (May 7, 2024)
24. Electronic Code of Federal Regulations (eCFR), 16 CFR Part 910, § 910.3 Exceptions (Version as of September 4, 2024)
25. Federal Trade Commission, FTC Announces Rule Banning Noncompetes (April 23, 2024 (page notes enforcement stopped August 20, 2024))
26. Federal Trade Commission, Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule (September 5, 2025)
27. Legal Information Institute, Cornell Law School, 26 U.S. Code § 197 Amortization of goodwill and certain other intangibles (Current text as read 2026-10-18)
28. Internal Revenue Service, Instructions for Form 8594, Asset Acquisition Statement Under Section 1060 (Rev. November 2021)
29. Colorado General Assembly, SB 25-083 Limitations on Restrictive Employment Agreements (signed act) (Signed June 3, 2025 (2025 Session Laws ch. 366); effective August 6, 2025)
30. Federal Trade Commission (Federal Register), Revision of the Negative Option Rule, Withdrawal of the CARS Rule, Removal of the Non-Compete Rule To Conform These Rules to Federal Court Decisions, 91 FR 6507 (FR Doc. 2026-02866) (February 12, 2026 (effective February 12, 2026))