Understanding Texas Business Purchase Agreements

When buying or selling a business in Texas, specific laws can influence how you proceed. Consider the following legal and financial factors to ensure your agreement is not only compliant and enforceable but also reflects your preferences.

Asset vs. Entity Sales in Texas

In Texas, you can choose to purchase an entire business via an entity sale. If you go this route, you accept all the business’s assets and liabilities. While it can be helpful for becoming an entrepreneur, you should conduct due diligence and ensure you understand what you’re taking on.

If you want to be more selective about what you accept, you can participate in an asset sale. An asset sale lets you choose which assets to purchase, and you can leave the liabilities with the seller.

When deciding between an asset vs. entity sale in Texas, you should check the business’s status via the Texas Secretary of State.

Like most states, Texas repealed its bulk sale laws. When these laws were still in place, buyers had to notify the seller’s creditors of the sale to prevent the offloading of liabilities. Now, buyers need to rely more heavily on their due diligence, including reviewing financial statements, accounts payable, and encumbrances or liens on the business assets.

Tax Implications

If you plan to buy a Texas business, you should reach out to the Texas Comptroller’s office to ask for a Certificate of No Tax Due. If you don’t complete this action, you become responsible for any overdue state taxes and fees. These can become quite expensive, as they include interest and penalties the business owes.

Per Texas Tax Code § 111.020, the buyer must withhold enough money from the purchase price to bear the cost of any unpaid taxes that the seller owes. However, they don’t have to do this if (a) the seller proves the tax has been paid or (b) the buyer gets official confirmation from the state via a Certificate of No Tax Due. This regulation prevents sellers from walking away without ensuring their taxes are paid.

When applying for the Certificate of No Tax Due, the seller and buyer must both complete Form 86-114. This form is the Joint Affidavit for Certificate of No Tax Due, allowing both parties to clarify independence from sales and franchise tax.

Updating Business Information

When you buy or sell a business, you must update the registration details to reflect the changes that come with new ownership. In Texas, you can use Form 424 (Certificate of Amendment) to file changes with the Secretary of State. Some changes you can record via this form include updates to the business’s name, registered agent, or LLC members (addition or removal).

The procedures differ depending on the entity type. Form 424 outlines instructions for for-profit corporations, professional associations, nonprofit corporations, cooperative associations, LLCs, and limited partnerships.

Legal Regulations for Business Purchases

The Texas Business and Commerce Code governs various aspects of business purchases, including rules for transferring business property and requirements for enforceable contracts.

Chapter 93 of the Texas Property Code regulates commercial leases. For example, it protects tenants and clarifies who is responsible for the security deposit if the commercial property being leased experiences an ownership change.

The state also has laws in place to protect buyers from fraud and misrepresentation. The Texas Deceptive Trade Practices Act has terms that prevent the seller from making false claims about potential business growth, concealing liabilities, and misrepresenting finances.

Texas Business Purchase Agreement Sample

View the sample Texas business purchase agreement to familiarize yourself with its format and clauses. When you’re ready, you can use our document builder to create your own.

Texas Business Purchase Agreement Template