Leaving a Startup Company and Non-Compete Agreements

December 11, 2005 | By | Reply More

QUESTION ON Leaving a Startup Company and Non-Compete Agreements

I am a young professional. I recently chose to withdraw from a startup company prior to its incorporation. I had approached the other key individual with the idea for the startup in fall of 2005. Over the course of 6-8 months of working with the individual I discovered that I could not work with him over the long term. There were 6 other proposed minority share holders. Prior to the incorporation I stated that I wanted no further business association with the group.

Approximately 2 weeks after this they incorporated and then sent me a release form that includes a non compete agreement that extends for 5 years and for a product that I had undertaken independently that has not yet been developed. Up to this point I have received not a single cent in compensation for contributions. It is my opinion that I never signed a non compete previously and that I certainly will not sign one now. Is there any grounds in this scenario for them to force this non-compete? I understand that I would not be able to take customer lists with me, but as of yet there is not a single customer.

– Gerald T. Riley – Maryland


Dear Gerald:

I am not an attorney, but to the question of whether someone can force you to sign an agreement, the answer is no. At least they shouldn’t. If someone were to force you to sign a contract under threat or intimidation, that is generally referred to as coercion–and agreements that are shown to be signed under duress or coercion typically do not hold up in court. But I digress.

The nature of your relationship with the corporation is unclear to me, particularly since the corporation technically did not even exist until after you severed ties with one of its shareholders. Also unclear is what exactly may be at stake here.

Bottom line: If you suspect that the corporation plans to use or sell a product or intellectual property to which you lay claim, you should consult an attorney to discuss copyright protection and infringement, as well as for guidance with respect to your rights to compete in the marketplace.

Chrissie Mould

Recommended Books on S Corporation:


Chrissie Mould

Chrissie Mould has over a decade of experience in business administration and startup business consulting. She has helped launch companies in multiple industries and has managed corporate administration and governance for public and private companies. She is an incorporation specialist with MyNewVenture.com LLC. The company provides low-cost incorporation services to entrepreneurs and small businesses.

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