A non-compete clause is an important provision in an LLC operating agreement that protects the LLC against competition from its members. This clause typically restricts members from engaging in activities that are in direct competition with the LLC’s business.

The non-compete clause is designed to ensure that members do not use their knowledge, skills, or resources gained through the LLC to start a competing business. For example, if the LLC operates a restaurant, the non-compete clause may prohibit a member from starting a similar restaurant in the same area.

The non-compete clause can be enforceable if it is reasonable in scope and duration. A court will consider factors such as the geographical area covered by the clause, the length of time the clause is in effect, and the nature of the LLC’s business.

The geographical area covered by the clause should be limited to the area where the LLC operates or has an established customer base. The length of time the clause is in effect should be reasonable. Generally, a non-compete clause that lasts for more than two years is considered unreasonable.

The nature of the LLC’s business will also be considered when determining the enforceability of the non-compete clause. If the LLC operates in a highly specialized industry, the non-compete clause may be more likely to be enforced.

It is important to note that a non-compete clause cannot be used to prevent a member from earning a livelihood. Therefore, the clause cannot be so restrictive that it prevents a member from working in their field.

In conclusion, a non-compete clause is an important provision in an LLC operating agreement that protects the LLC from competition from its members. It is important to draft the clause carefully to ensure it is reasonable in scope and duration and does not prevent members from earning a livelihood.