Business Competition Claims
When business partnerships or ventures go bad, it is common for the different owners to attempt to “go on their own.” But what rights does a departing equity owner have to take customers with him or her? What information belongs to the company and what can someone take with them?
The answers to these and other questions will depend on a number of factors. Is the departing owner also an employee or officer? Are there restrictive covenants (non-compete or non-solicit agreements) in place? If so, are they enforceable? Does the operating agreement or shareholder agreement address these issues? Did the departing owner bring a “book of business,” or are the customers involved a result of organic growth? What steps did the departing owner take, while he or she was still associated with the enterprise?
Unfortunately, there are many myths and lots of bad information passed around about such matters as the enforceability of restrictive covenants. Many potential clients –including many successful business people — have told us they already have been told by somebody that restrictive covenants are never enforced in South Carolina, or that you can’t have restrictive covenants in a right-to-work state. This simply is not true (and the right to work law has nothing to do with it). Whether such covenants are enforceable is dependent on a number of factors, including the circumstances under which they were entered into, the status of the person bound, the underlying purpose, and whether the covenant is reasonably drawn under the circumstances.
In addition to the above-mentioned claims, ensuing litigation regarding a departing owner often involve claims of breach of duty of loyalty and breach of the entity’s operating or equity owners’ agreements.