Texas has always been known for its “go big or go home” attitude, and buying or selling a business can be no different in this Lone Star state. Thanks to its low taxes, skilled workforce, and strong infrastructure, it is consistently ranked as one of the best states for business on Forbes. It alone is in fact, home to over 3.3 million small businesses, making it one of the most profitable locations for buying or selling a business in Texas.
However, when it comes to investing or selling a business, understanding the legal, financial, and operational considerations is crucial. Proper planning, along with reliable legal and financial support, can help streamline the challenges by ensuring compliance with Texas regulations, securing fair valuations, and mitigating potential risks throughout the transaction. And this business buying and selling guide will help you with that – provide you with the strategic moves you need to make when buying or selling a business in Texas.
The Process of Buying or Selling a Business in Texas
Legal Considerations for Buying or Selling a Business in Texas
There are various legal considerations for buying or selling a business in Texas that must be addressed to ensure a smooth and legally compliant transaction:
Business Entity Structure and Sale Type
There are basically two types of sales that contribute a lot to your decision-making for your business:
- Asset sale: When the buyer purchases specific assets and liabilities of a business, for instance, real estate, equipment, or intellectual property contracts, it is called an asset sale. This means you will buy or sell a part of your business or your whole business in individual parts.
- Stock or Equity Sale: In this type of sale, the buyer gets shares or ownership interests in the business entity, which includes all the assets and liabilities.
But in both of these cases, the business structure gets affected and also affects how the ownership is going to be transferred. For example, a stock sale might be easier for corporations, while LLCs might require more paperwork to transfer membership interests.
Franchise Taxes
When you have franchises of your business within the state of Texas, a franchise tax is imposed on it. This is why, when you are buying or selling a business, the franchise tax status must be reviewed to make sure there are no outstanding taxes.
No Tax Due Certificate
Before finalizing your business purchase, don’t forget to contact the comptroller’s office and request a Certificate of No Tax Due. The Texas Tax Code Section 111.020 states that if someone sells a business and still owes taxes, the buyer is responsible for holding back part of the purchase price to cover the outstanding tax.
Due Diligence and Contractual Obligations
If you are a buyer, you need to review the business’s key contracts, leases, and vendor relationships as they impact the future of the business. Along with this, intellectual property rights should also be identified and transferred. These should be clearly mentioned in the purchase agreement to ensure there are no future disputes.
Other than this, one of the most important elements of a business is its workforce. The buyer should ensure that the business complies with all the labor laws and has valid contracts with them, which are transferred effectively.
Non-Compete and Non-Disclosure Agreements
A non-compete agreement may apply when you don’t want the seller to start a similar or competing business around that particular location for a certain time. To enforce this, the reasons must be genuine in scope, duration, and geographic location. On the other hand, the transfer of a business is a sensitive subject, and to ensure the confidentiality of information, a non-disclosure agreement is signed between the two parties.
Real Estate and Property Transfer
If the business involves real property like a storefront or an office, the buyer must evaluate the existing lease agreement or property titles. The property must be transferred to the next owner, and it should be done as per the laws of Texas, which states that for an LLC or corporation, ownership can be transferred via an operating agreement (for LLCs) or corporate bylaws/shareholder agreement (for corporations).
A Choice-of-Law Clause
This clause allows both buyer and seller to designate a specific state’s laws to govern their agreement. This principle is reflected in Section 1.301(a) of the Texas Business and Commerce Code, which states that when a transaction bears a reasonable relation to Texas and another state or nation, the parties may agree that the law of either jurisdiction will govern their rights and duties.
Preparing to Sell Your Texas Business
If you’re looking to sell your Texas business but aren’t sure where to start, here’s how to do it:
Organizing Financial Records
It is always recommended to get an accurate market value, including an analysis of the financial statements, assets, liabilities, and condition of the market at the moment. As per that, analyze the profit and loss statement, balance sheets, and cash flow statement of the past 3-5 years to get a clear picture of your business.
Enhancing Business Value Before Sale
Enhancing the value of your business before sale with the help of strengthening customer retention and recurring revenue streams can help effectively in selling your business, as it increases the selling price, buyer interest, and overall attractiveness of the business.
Identifying and Screening Potential Buyers
Strategically target potential buyers, like financial investors or individual entrepreneurs, based on the type of business you have. While screening them, make sure they sign an NDA to protect information about your business.
Hiring Professional Advisors
There are many professional advisors who are skilled in streamlining the process of sale. There are business brokers who find the buyers and negotiate the value to give you the best price; CPAs who help in valuation, financial review, and tax planning; and financial advisors who guide you to get the maximum sale price and structure the deal.
Negotiating the Best Deal Terms
Choosing the right sale terms is very important for both parties involved, and a well-structured deal means you will get a smooth, fair transaction and financial security. The key options in which the payment can be made are:
- Lump Sum Payment: The buyer pays the full amount upfront, providing immediate liquidity to the seller.
- Installment Payment: The buyer pays over time, which can help attract buyers who need financing.
- Seller Financing: The seller extends credit to the buyer, allowing payments over a set period with interest.
Whichever option you choose, make sure to evaluate the tax implications and financial risks when you are negotiating terms.
Closing the Sale and Transitioning the Business
While closing the sale and completing the transition of the business, the documents that need to be written and signed are:
- LOI / Offer Letter: To clarify binding terms.
- Purchase Agreement: Required to transfer ownership.
- Bill of Sale: Needed for selling physical assets separately.
- Assignment of Contracts: Required to transfer existing business agreements.
These are important to confirm terms on both sides to transfer the business assets.
How to Buy a Business in Texas?
Let us now talk about how to buy a business in Texas now:
Identify the Right Business
Always start with defining the kind of industry you want to get into, and then, as per your budget and experience requirements, start your search. You can hire a broker, go to a marketplace, or even use your industry networks to find yourself a deal.
Evaluate the Business
Review the financial statements, tax returns, and revenue trends of the company. Along with that, assess the customer base and operational structure. Verifying the current contracts, leases, and vendor agreements will also provide you with a clear understanding of the business.
Secure Financing
Explore funding options:
- SBA Loans (Small Business Administration-backed loans).
- Bank Loans or private lenders.
- Seller Financing, where the current owner provides financing.
Negotiate & Structure the Deal
Determine whether you want to buy assets or stock and then negotiate the terms, including the pricing, payment structure, and transition support that will be required for a smooth transfer of power.
Finalize the Purchase & Transition
Finally, when everything is discussed and the agreements are created, you can sign the purchase agreement and get the ownership transferred. Update the business accounts, banking, and operational systems, and communicate the charges to the employees, customers, and suppliers.
Key Legal Rules
There are certain specific rules and regulations that must be followed when you are buying or selling a business in the state of Texas, like:
- Texas Business & Commerce Code (§ 2.102 & § 2.201): If the business includes goods like inventory or equipment, the sale must follow contract rules, including written agreements for items worth $500 or more.
- Securities Laws: If the selling company has shares instead of just assets, federal and state securities laws may require approvals or disclosures.
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UCC Article 9: If business assets have existing debts, proper paperwork must be filed to transfer ownership cleanly.
Conclusion
When we step back to see the bigger picture, we realize that the process of buying or selling a business is more than just a transaction. Every contract that you sign, agreement, and negotiation carries legal and financial implications. Doing all that without the right legal support can lead to very costly consequences like unfavorable terms, breach of contract, tax consequences, and many more. To save yourself from all these, getting in touch with a business law attorney in San Antonio and other parts of Texas can be very helpful.
At Mazurek, Belden & Burke, P.C. (MBB), we provide skilled legal counsel to help you navigate all your legal issues. Whether you need assistance with Company Formation, Purchase and Sale Agreements, Employment Contracts, Intellectual Property Protection, or Succession Planning, our attorneys ensure your business is legally secure and positioned for success.