- By Daniel ORGUÉ
Investing and buying companies can be very useful tools to grow your business. In this way, apart from improving your position and reputation in the market and eliminating part of the competition, you will be able to gain customers, increase income and therefore, if it is well managed, greater profits. The sale of companies can be a quick mechanism to attract clients and potential clients and a good way to obtain a good return if certain precautions are taken, by optimizing structures, resources, personnel, and suppliers.
When a company is acquired, one of the important assets that is pursued with it is the acquisition of the goodwill of the selling company. That is, the customers.
In this type of operations of sales of Goodwill or of Companies, our firm includes specific clauses in the Contract or Purchase Agreement, to avoid this situations. These are called Non-Competition and Non-Concurrence Agreements in which the parties establish certain obligations for the seller during a certain period of time, per example, for three years.
Examples of obligations for the seller of the Company that our lawyers have seen are:
• Seller cannot provide the same services that the company that has sold and has been providing up until then, neither by itself, nor through third parties or companies.
• May not provide such services to any of the company's clients.
In addition, and to dissuade the seller of the shares from being tempted to call the clients that make up the transferred goodwill, it can be established that in the event of breach of any of these Agreements, the seller will be obliged to pay compensation for the damages caused, being this already established and stipulated in the contract, thus avoiding the uncertainty that a judge may incorrectly assess the damages that the fraudulent acquisition of customers by the seller could have caused to the buyer.
And so that there is no hint of doubt in relation to whom those clients pertain, in our contracts for the sale of companies we include a list of clients to avoid conflicts in the future of interpretation regarding whether they were a goodwill client or not.
What if the Contract or Deed of sale does not say anything?
In some occasions our clients come to our firm when the problem has already been caused or once they have already signed the contracts without our prior advice and without including said non-competition and non-concurrence clauses.
In these cases, usually the seller thinks (incorrectly) that the free competition and free market principles rule in these contracts and they contact again with the old clients to offer them the same products or services that were being offered by the Company that has been sold.
In this respect, it is clear that the businessman that acquires a Goodwill or a Company in this operation has the principal object of keep growing the Company and that one of the most important actives is the Goodwill and the customer base/portfolio and, consequently, there is nothing to do if you buy a Company in which the Seller is keeping all the client portfolio to themselves, both partial or totally. Is there any solution to this?
On this matter the Law does not establish anything in a concrete way, it seems quite incredible that there is abundant commercial legislation, either through the Capital Companies Law, a Commercial Code and the old Laws of Limited Companies, but there is not a single paragraph dedicated to this question. This is what we call a full-blown “legal gap”.
But luckily, the Judges and Courts have made their best efforts to make this issue clear and have even used comparative law to determine their position: whoever sells a commercial company or a productive unit/goodwill has the duty to refrain from carrying out concurrent or competing activities.
Consequently, even if the contract does not say anything specifically about this matter, it would be absolutely prohibited for the seller to offer the same products and / or services to the same clientele of the company that has been sold.
Also, some of these Judges and Courts use an article of the Italian Legislation to base their conclusions and that says: “[…] whoever sells the company has to abstain, for the period of five years of the transfer, from starting a new company that due to the purpose, location or other circumstances it is suitable to divert customers from the sold company [...] "
In conclusion, it is always preferable to include these clauses in the Contracts and Deeds of sale of Companies and Productive Units, to avoid doubts and problems in the future, but if not, it must be borne in mind that you have the Protection of the Judges and Courts.
Do you want to buy or sell a Company and make sure that customers are not taken away? Have you already bought a company and the seller is recruiting customers who were part of the acquired company? Count on our lawyers of the Mercantile Area of our firm to receive all the advice and drafting of the necessary documents. You can request online advice through our legal videoconference service, or if you prefer, request a face-to-face visit at our offices.