TEXAS BUSINESS LAW
Buying or Selling a Business in Texas: The Complete Roadmap
A Texas business sale moves through six stages: preparation and valuation, the letter of intent, due diligence, the purchase agreement, entity and closing mechanics, and the post-closing transition. One Texas rule shapes the road above all: a buyer who closes without a Certificate of No Tax Due can be liable for the seller’s unpaid state taxes, up to the purchase price — which is why tax clearance, lien searches, and the purchase agreement itself do the protective work at every stage.
Each stage below links to a deeper guide.
The Six Stages at a Glance
| Stage | What happens | Key output |
|---|---|---|
| 1. Preparation and valuation | Seller assembles records; buyer values and finances | Agreed basis for price talks |
| 2. Letter of intent (LOI) | Price and structure set — mostly non-binding | Signed LOI |
| 3. Due diligence | Buyer verifies; Texas tax clearance begins | Findings list; Form 86-114 submitted |
| 4. Purchase agreement | Binding contract: reps, warranties, indemnities | Signed purchase agreement |
| 5. Entity and closing | Permits, consents, escrow, funds for documents | Closed deal |
| 6. Post-closing transition | Training, handoffs, filings, seller wind-down | Business running under new ownership |
Stage 1: Preparation and Valuation
Preparation is the work each side does before anyone signs anything: the seller assembles years of financials and tax returns, cleans up entity records, and flags contracts, licenses, and leases needing attention; the buyer figures out what the business is worth and how to pay for it.
Valuation starts from normalized earnings — real cash flow after one-time items and owner perks are backed out. How that becomes a price is covered in how to value a business when buying in Texas. Sellers should work from the seller’s preparation checklist so diligence does not stall on missing records; buyers hunting for a target can start with buying a business from retiring baby boomers.
Stage 2: The Letter of Intent
A letter of intent is a mostly non-binding document setting the price, structure, diligence period, and any exclusivity while the parties negotiate. Most economic terms are settled before the definitive agreement is drafted. Buyers should enter it with negotiation strategies mapped out; both sides should know the common negotiating mistakes in a Texas business sale.
The Structural Choice: Asset Sale or Entity Sale
Every Texas business sale is structured one of two ways, usually settled in the LOI. In an asset sale, the buyer buys specific assets — equipment, inventory, contracts, goodwill — and generally leaves the seller’s entity and most liabilities behind. In an entity sale, the buyer takes the whole company, known liabilities and unknown ones alike.
| Asset sale | Entity sale | |
|---|---|---|
| What transfers | Listed assets: equipment, inventory, contracts, goodwill | The entity itself, with everything it owns and owes |
| Liabilities | Stay with the seller unless expressly assumed | Travel with the entity, known and unknown |
| Typical preference | Buyers — cleaner risk profile, potential stepped-up tax basis | Sellers — simpler exit, often capital-gains treatment |
| Texas mechanics | Tax clearance and lien releases matter most | The entity’s accounts, standing, and history come along |
The fuller comparison — including tax treatment and successor liability — is in asset vs. stock purchase.
Stage 3: Due Diligence
Due diligence is the buyer’s systematic investigation of the business — financial, legal, tax, and operational — before signing the binding agreement. In Texas, three parts deserve the most attention.
Entity verification. Confirm the entity exists and is active in Texas Secretary of State records — an SOS certificate of fact — status is official evidence of that standing. Run UCC lien searches to find security interests in the assets.
Records review. Financials reconciled to bank statements; contracts and whether they can be assigned; licenses and permits (some must be reissued rather than transferred — alcohol permits are the common example); litigation, employment, and intellectual property. The walkthrough is in due diligence for buying a business and the types of due diligence in a Texas sale; the seller’s side in why diligence matters when buying or selling.
Tax clearance — start early. Under Texas Tax Code § 111.020, a buyer who closes without a Certificate of No Tax Due can be held liable for the seller’s unpaid state taxes, up to the purchase price. Buyer and seller jointly submit Form 86-114 to the Comptroller; the certificate is free, usually issued within 10 business days, but up to 90 days if the seller’s books are audited. File it at the start of diligence, not the week of closing — the full buyer-side checklist is here.
Stage 4: The Purchase Agreement
The purchase agreement is the binding contract of the deal: price, what is sold, representations and warranties, disclosure schedules, indemnification, and closing conditions. For buyers, it makes diligence findings enforceable — every discovered risk should resurface as a rep, adjustment, or indemnity. For sellers, disclosure discipline pays off: disclosed problems belong to the buyer; concealed ones become the seller’s post-closing liability.
Standard terms include escrow or holdbacks, a purchase-price allocation, and a covenant not to compete — enforceable in Texas when tied to the sale of a business and reasonable in time, geography, and scope. For drafting, see essential tips for the purchase agreement.
Stage 5: Entity, Tax Clearance, and Closing
Closing is the exchange: the seller delivers the assets or ownership interests and closing documents; the buyer delivers the funds. Around that moment, Texas mechanics do the real work.
Sales tax permits do not transfer — the buyer applies for its own, plus formation filings and any assumed-name registrations with the Secretary of State. The Stage 3 certificate is confirmed at the escrow table, with any amount the Comptroller says is owed withheld from the price. Sellers notify the Comptroller that the account is closing, and an entity wound down after an asset sale must file a final franchise tax report and pay any tax due — the Secretary of State will not accept a certificate of termination until the Comptroller issues a Certificate of Account Status confirming all state taxes are paid.
Creditor protection comes from the deal itself: UCC lien searches, lien releases at closing, contractual representations, and fraudulent-transfer law. For the map of state agencies and filings, see the legal framework guide and our Texas business law practice.
Stage 6: Post-Closing Transition
The post-closing period is where the buyer takes possession of what was purchased: training, introductions to key customers and suppliers, access to records, and any seller consulting period. It is also the compliance tail: the buyer’s first sales-tax-permit filings, franchise tax going forward, the seller’s final filings and wind-down. Sellers financing part of the price should track escrow and earnout milestones early.
Where to Go Deeper: The Texas Business Sale Guides
These are the cluster’s deeper guides, mapped to where each matters most on the roadmap.
| You want to… | Read |
|---|---|
| Find and evaluate a business to buy from a retiring owner | Buying from retiring baby boomers |
| Value a business before making an offer | How to value a business when buying in Texas |
| Prepare a business for sale | The seller’s checklist |
| Negotiate the LOI | Negotiation strategies for buyers · Negotiating mistakes to avoid |
| Run due diligence | Buyer’s due diligence guide · Types of due diligence · Why diligence matters · The buying checklist |
| Choose the deal structure | Asset vs. stock comparison |
| Draft the purchase agreement | Purchase agreement essentials |
| Understand the agencies and filings | The legal framework quick guide · The complete legal overview |
Frequently Asked Questions
How long does it take to buy or sell a business in Texas?
Diligence and financing set the timeline, but one Texas step has fixed mechanics: the Comptroller usually issues a Certificate of No Tax Due within 10 business days of a proper Form 86-114 request — up to 90 days if the seller’s records are audited. File early so the certificate does not set the closing date.
Can a buyer inherit the seller’s taxes in a Texas business sale?
Yes — up to the purchase price — if the buyer closes without a Comptroller receipt or Certificate of No Tax Due. Texas Tax Code § 111.020 requires the buyer to withhold enough of the price to cover the seller’s unpaid state taxes until either is produced.
Is selling a business subject to Texas sales tax?
Generally no. Texas treats the sale of a business’s entire operating assets — in a single transaction to a single purchaser — as an exempt occasional sale. The exemption is technical (inventory and intangible property fall outside it), so review the price allocation with it in mind.
Every stage of this roadmap is legal work at a flat fee: Reidel Law Firm handles Texas business sales from first valuation through closing. Get flat-fee help with your Texas business sale.
