Asked by
Fadia Arcani
on Nov 23, 2024
Verified
X sold his retail clothing business to Y. The business was located in a small town, and most of the customers lived within a radius of eight kilometres of the clothing shop. As a part of the sale agreement, X agreed not to set up a similar business in competition with Y for a period of five years or within a radius of eight kilometres of the shop. The "five-year; eight-kilometre radius" restriction is probably reasonable, as it protects the goodwill purchased by Y, and does not unnecessarily restrict X's right to set up business elsewhere.
Goodwill
An intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets, reflecting the company's brand, customer base, and other non-physical assets.
Restriction
A rule or condition that limits or controls someone's actions or a particular activity.
Business Elsewhere
The decision by a customer to take their business to a competitor or alternative provider, usually due to dissatisfaction.
- Comprehend the effects of restrictive covenants and competition laws on corporate practices.
Verified Answer
OA
Learning Objectives
- Comprehend the effects of restrictive covenants and competition laws on corporate practices.