- A contract only binds the parties who sign it.
- In an asset sale, the seller is typically the corporation itself — it sells specific assets to the buyer and keeps its corporate shell (along with whatever liabilities weren't assumed by…
- Because of this gap, buyers routinely insist that the individual owner — not just the corporate seller — personally sign the non-compete (and usually the related non-solicitation and…
A non-compete clause is only as strong as who it actually binds. Buyers sometimes assume that once a purchase agreement includes a non-compete, the person who really matters — the owner who built the business's reputation and relationships — is locked in. That's not always true. Depending on how the deal is structured and who signs what, the individual owner can walk away from the transaction with far less restriction than the buyer expected.
This article explains the practical difference between a corporate non-compete and a personal non-compete, and why buyers so often insist on both.
Who Is Actually Bound by a Non-Compete?
A contract only binds the parties who sign it. If a non-compete clause appears in the purchase agreement and only the selling corporation is a party to that agreement, then — as a matter of basic contract law — only the selling corporation is bound by it. The individual person who owns and runs that corporation is a separate legal entity from it, and isn't automatically restricted just because "their" company signed a non-compete.
This distinction matters enormously depending on how the transaction is structured.
The Problem With a Corporate-Only Covenant
In an asset sale, the seller is typically the corporation itself — it sells specific assets to the buyer and keeps its corporate shell (along with whatever liabilities weren't assumed by the buyer). If the non-compete binds only that selling corporation, the individual who owned and ran it is, on paper, free to start a brand-new venture personally, or through a different corporation entirely, without technically breaching a covenant that was only ever given by the old corporate entity.
In a share sale, the dynamic is a little different — the buyer acquires the shares of the operating corporation itself, so that corporation (and any non-compete it gives) effectively becomes the buyer's own asset going forward. The real risk in a share sale isn't usually the corporation competing with itself; it's the individual former shareholder walking away and starting something new. If the non-compete was only given by the corporation being purchased, it does little to restrain the individual who used to own it.
Why Buyers Ask for a Personal Covenant Too
Because of this gap, buyers routinely insist that the individual owner — not just the corporate seller — personally sign the non-compete (and usually the related non-solicitation and confidentiality provisions as well). A personal covenant directly binds the individual regardless of what corporate vehicle they might use afterward to compete, close the gap that a corporate-only clause leaves open.
This is standard practice in Ontario business sales precisely because the goodwill a buyer is paying for is so often tied to the individual — their reputation, relationships, and reputation in the industry — rather than to the corporate entity as an abstract legal shell.
Share Sales vs. Asset Sales: Who Typically Signs the Non-Compete
| Deal Structure | Who Sells | Typical Non-Compete Signatories |
|---|---|---|
| Asset sale | The corporation (keeps its shell after selling assets) | The selling corporation, and usually the individual owner(s) personally |
| Share sale | The individual shareholder(s) (selling the shares themselves) | The individual seller(s) personally — the corporation is now the buyer's own entity |
The Employment Status Wrinkle
Whether a personal non-compete is enforceable also depends on the individual's relationship with the purchaser going forward. Ontario's general ban on employee non-competes has a business-sale exception, but that exception generally requires the seller to actually become an employee of the purchaser as part of the deal. Where the individual becomes an employee post-closing, the ESA exception can support the personal non-compete's enforceability; where the individual has no ongoing employment relationship with the buyer at all, the analysis is more nuanced and deserves specific legal review rather than an assumption either way.
This is one more reason a personal covenant needs careful drafting rather than a generic template — the same clause can sit in very different legal territory depending on whether the seller is staying on or walking away entirely.
Frequently asked questions
If a corporation signs a non-compete, isn't its owner automatically bound too?
No. A corporation is a separate legal entity from its owner. Unless the individual also personally signs the covenant (or is otherwise bound by a specific provision extending it to them), the owner isn't automatically restricted just because their company agreed to a non-compete.
Does this matter more in an asset sale or a share sale?
It matters in both, but for different reasons. In an asset sale, the selling corporation typically survives the transaction, so the individual owner needs a personal covenant to be genuinely restricted. In a share sale, the corporation itself becomes the buyer's asset, so the real gap is making sure the departing individual shareholder — not just the entity being sold — is personally bound.
Can multiple individual owners be asked to sign personally?
Yes. Where a business has more than one owner, buyers commonly ask each individual owner involved in day-to-day operations or client relationships to sign a personal non-compete, not just a majority shareholder.
What if the seller refuses to sign a personal covenant?
That's a negotiation point like any other deal term. A buyer unable to secure a personal covenant from a key individual may adjust price, structure, or other protections accordingly — or decide the risk is significant enough to walk away from the deal as structured.
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