A partner who leaves is free to compete with the old business unless the partnership agreement, or a buyout agreement, says otherwise. The duty not to compete is part of a partner's duty of loyalty, and under the Uniform Partnership Act (1997) it ends the day the partner dissociates (§603(b)(2)). After that, only a contract restrains them.

Such a contract is far easier to enforce against a partner than against an employee. Even California, which voids nearly every employee non-compete, lets a partner agree not to compete when the partnership dissolves or the partner leaves (Bus. & Prof. Code §16602). The reason runs through all of this law: an owner who is paid for a share of the goodwill can fairly be asked not to take it back. What differs from state to state is how wide the restriction may be and what it must be tied to.

This is general information about state law as of 2026; a lawyer in the state whose law governs your agreement should read the clause.

Where the FTC's non-compete ban stands

The rule would not have reached most partner covenants anyway: it concerned workers, and it carried an exception for a non-compete entered into on the sale of a business or of an owner's interest.

Why courts treat a partner's covenant differently

An employee non-compete restrains someone who sold only their labor. A partner's non-compete usually travels with a payment for the partner's share, and much of that share is goodwill: the clients, the name, the referral sources. Allowing the seller to take the price and then the clients would let them sell the same thing twice. Statutes and courts across the country accept that logic, which is why the exceptions below exist even in the strictest states.

Two consequences follow for anyone drafting one. First, tie the covenant to the buyout: a restriction signed in exchange for a payment for the interest sits squarely inside the sale-of-business exceptions, while a bare promise in the original agreement, with nothing paid on exit, is weaker. Second, keep it to the business actually transacted, where it was transacted. Every statute quoted below limits the restriction to the area where the partnership did business.

What the statutes say, state by state

Most states have no statute on point and apply a judge-made reasonableness test (below). The states with statutes are the ones where getting it wrong costs the most. The full 50-state table is in Reference.

States with statutes on owner and partner non-competes

State Rule for partners and owners Statute
California Restraints are void except as the chapter allows (§16600). A partner may agree not to carry on a similar business within a specified area where the partnership did business, on dissolution or on the partner's dissociation (§16602); LLC members the same (§16602.5); sellers of goodwill or of an entire ownership interest (§16601). A void covenant is unenforceable wherever it was signed (§16600.5). [Bus. & Prof. Code §16602](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16602)
Minnesota Since July 1, 2023 covenants between employer and employee are void. Owners may still agree to a covenant on the sale of a business, or on or in anticipation of the dissolution of a partnership, LLC or corporation, within a reasonable area and time. [Minn. Stat. §181.988](https://www.revisor.mn.gov/statutes/cite/181.988)
North Dakota Restraints void except: a seller of goodwill and the seller's partners or members; and partners, members or shareholders on dissolution, on a partner's or member's dissociation, or in an agreement on the sale of an ownership interest, within a reasonable area. [N.D.C.C. §9-08-06](https://ndlegis.gov/cencode/t09c08.pdf)
Florida Enforced if reasonable and supporting a legitimate business interest. Against a seller of a business or of a partnership or LLC interest, 3 years or less is presumed reasonable and more than 7 years unreasonable (against a former employee: 6 months and 2 years). [Fla. Stat. §542.335](http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0500-0599/0542/Sections/0542.335.html)

One consequence of the California and North Dakota wording is easy to miss. Both protect a covenant made on dissolution, dissociation or a sale. A partner who simply resigns from a continuing business, with no sale of the interest, is in the dissociation branch in both states, but in Minnesota the statute names only a sale or a dissolution. A Minnesota clause should be written so the exit is a sale of the interest.

How courts in other states judge reasonableness

Where no statute governs, courts ask the same few questions, and a clause that answers them in its own text is much harder to attack:

What a court looks for in a partner non-compete

  • A legitimate interest to protect: goodwill paid for, client relationships, confidential information. Avoiding competition for its own sake is not one.
  • Activities limited to what the business actually does, not every business the partner could enter.
  • Geography limited to where the business actually operates.
  • A duration that fits the time it takes the buyer to keep the clients the price paid for. Florida's presumptions (3 years presumed reasonable for a seller) are a useful benchmark even outside Florida.
  • Consideration: something received for the promise, which on exit is usually the buyout price.
  • Whether a court in the state will narrow an overbroad clause or throw it out whole. Some will rewrite it to a reasonable scope; others strike it entirely, which is the argument for drafting narrowly from the start.

If there is no non-compete in the agreement

Without a clause, a former partner can open a competing business the day after leaving. Three things still constrain them.

Duties that survive the exit. The duty not to compete ends on dissociation, but the duties of loyalty and care continue "with regard to matters arising and events occurring before the partner's dissociation" (§603(b)(3)). A partner who diverted a client opportunity while still a partner, or started the rival business before leaving, can be sued for it (§404(b)), and an agreement cannot eliminate the duty of loyalty (§103(b)(3)).

Trade secrets. Client lists with pricing, formulas and other confidential information that is protected as a trade secret cannot be taken, under the federal Defend Trade Secrets Act and each state's trade secrets statute. This applies whatever the contract says.

The partnership's property. Files, the client database, the domain and the phone number belong to the partnership, not to whichever partner used them. Taking them is a separate wrong from competing.

What the departing partner can lawfully do is announce the move and accept clients who follow on their own. Whether they may actively solicit former clients is the gap a non-solicitation clause closes, and in a state hostile to non-competes it is often the clause that survives.

Sample wording tied to a buyout

Partner non-compete and non-solicitation on exit 
Restrictive Covenants. In consideration of the purchase of the Departing Partner's interest under Section [__], including the goodwill attributable to it, the Departing Partner agrees that for [24] months after the Closing Date the Departing Partner will not, directly or through any other person: (a) carry on or hold an ownership interest in a business that provides [describe the services the Partnership actually provides] within [the counties of __ / a radius of __ miles of the Partnership's offices at __], being the area in which the Partnership has transacted business; (b) solicit, for the purpose of providing those services, any person who was a client of the Partnership during the [12] months before the Closing Date; or (c) solicit any employee of the Partnership to leave its employment. Passive ownership of less than [2]% of a publicly traded company is not a breach. If any restriction is held unenforceable as written, the parties intend it to be enforced to the maximum extent permitted by the law of the place where enforcement is sought. The Departing Partner acknowledges that this Section is part of the sale of the Departing Partner's interest in the Partnership's business and goodwill.

Describe the services and the area narrowly; both are what a court reads first. The acknowledgment in the last sentence places the covenant inside the sale-of-business and dissociation exceptions (Cal. Bus. & Prof. Code §§16601, 16602; Minn. Stat. §181.988; N.D.C.C. §9-08-06). Whether a court will narrow an overbroad clause, as the second-to-last sentence asks, depends on the state. Put the covenant in the buyout agreement as well as the partnership agreement, so it is signed when the money changes hands.

Where this fits in the exit

The covenant belongs in the same agreement that sets the price, because the price is what makes it enforceable and the restriction is part of what the buyer is paying for. Writing a partnership exit clause covers the rest of that clause; how to buy out a business partner covers the purchase itself; and if the business is closing rather than being bought, how to dissolve a partnership covers the winding up, which is itself one of the occasions the statutes allow a covenant to be agreed.

The practical rule from all of this is short. A non-compete signed when the partnership began and never mentioned again is the weakest version of the clause; the same covenant, re-signed in the buyout and paid for in the price, is the strongest.