Non-competes when buying a business in New York

Start by discarding what you have probably read

A great deal of material online says the Federal Trade Commission banned non-compete agreements. The Commission's own page says otherwise, and it is worth quoting in full because the wording is unambiguous:

"The Noncompete Rule is not in effect and it is not enforceable. On August 20, 2024, a district court issued an order stopping the FTC from enforcing the rule. The FTC appealed that decision on October 18, 2024. On September 5, 2025, the FTC took steps to dismiss its appeal in the Fifth Circuit." ^[1]

The FTC then finished the job: effective 12 February 2026 it removed the Non-Compete Clause Rule from the Code of Federal Regulations, to conform to the court decisions ^[5] .

So there is no federal ban operating on your transaction. If a source tells you otherwise, it was written during the period when the rule was expected to take effect and has not been updated since — which is a useful test to apply to the rest of that source too.

Two different things share one name

The second reason the reading is confusing: almost everything written about non-competes is about employment, and you are asking about an acquisition. These are treated as distinct categories in most analyses, and the distinction is the single most useful thing to hold onto.

When you read anything on this subject, establish which it is talking about before you take anything from it.

What this page will not tell you

What we can do is set out the parts that are settled and are within your control.

How it is taxed, and why the seller resists

A covenant not to compete is a section 197 intangible. In the purchase price allocation it therefore falls in Class VI, alongside customer lists and workforce in place, and amortises over fifteen years ^[2] .

On the seller's side the treatment is typically ordinary income rather than capital gain. That is why a seller's adviser will push value away from the covenant and toward goodwill — and it is a genuine economic conflict rather than obstruction. Understanding it before you sit down is worth more than winning the argument afterwards.

Two practical consequences:

• Do not let the allocation happen by default. Section 1060(a) makes a written allocation binding on both parties unless the Secretary determines it is not appropriate ^[4] . Whatever number ends up beside the covenant is the number you both live with. Our allocation guide covers the negotiation and the tax modeller prices it.
• Be aware of the circularity. A covenant valued at nothing is a covenant a seller can argue was worth nothing. Allocating a defensible amount is not only a tax question.

SBA financing can pay for it

If you are financing with a 7(a) loan, the covenant is fundable. SOP 50 10 8.1 provides that a loan may be used to finance a change of ownership including intangible assets, and lists "agreements not to compete" expressly among them, as long as the appendix's financial due diligence requirements are met ^[3] .

Note the interaction with another rule in the same appendix: in a Business Expansion or Initial Acquisition the seller may not remain as an officer, director, stockholder or employee, and a consultancy is capped at 24 months in aggregate. So the SBA framework already contemplates the seller leaving — the covenant is about what they do afterwards. See the equity injection guide.

Be honest about what a covenant actually protects

This is the part buyers get wrong in the other direction — over-relying on the clause.

A covenant is a legal backstop. It gives you a claim if the seller sets up in competition. What it does not do is keep customers, keep staff, or transfer a relationship. If the business you are buying rests on the seller personally — and in a great many small acquisitions it does — then the covenant addresses the worst case while doing nothing about the likely one, which is that customers drift away because the person they dealt with is gone.

The things that actually protect that value are operational, and they belong in the deal rather than in the covenant:

1. A real transition, with the seller's time defined in the agreement rather than promised in conversation, and paid for.
2. Introductions on a schedule, to named accounts, with you present.
3. Key staff retained on terms agreed before closing, not after.
4. Customer contracts assigned where they exist, with consents obtained as a closing condition.
5. Price that reflects the risk — if the relationships may not transfer, that belongs in the number rather than in a clause you hope never to use.

Our guide to buying from a retiring owner covers the transition question, and customer concentration covers the risk a covenant is usually being asked to carry.

What to do

1. Raise it in the letter of intent, not in the first draft of the agreement. That its existence and rough shape are agreed early costs nothing and prevents a late fight.
2. Have it drafted by counsel who practises where the business is, on your actual facts. This is not a template exercise.
3. Allocate a defensible value to it deliberately, understanding that the seller has a real tax reason to resist and that the allocation binds you both.
4. Make sure it covers the right people. An owner selling through an entity, a spouse involved in the business, a key employee who is also a minority shareholder — who is bound is a drafting question with real consequences.
5. Do not let it substitute for the transition. If the deal only works because of the covenant, the deal probably does not work.
6. Re-check the federal position at signing. The FTC page carries the current status and the site's registry entry is set for review; litigation and rulemaking in this area have moved before and may move again.

Scope and limits

This page states the federal rule's status as the FTC publishes it, and the tax and SBA financing treatment from the sources cited. It does not state the law of any state on enforceability, and it should not be read as doing so. Nothing here is legal advice. The position is capable of changing — both through litigation and through state legislation — and a page that told you it was settled would be doing you a disservice.