TEXAS BUSINESS LAW
Texas Business Purchase Agreement: Key Clauses
A business purchase agreement is the binding contract that controls a Texas business sale: it names the parties, sets the price and payment terms, lists exactly which assets and liabilities transfer, and locks in the promises — representations and warranties — each side is relying on. Get these terms right and the rest of the deal has a clear roadmap; get them vague and you have a lawsuit waiting for the first disagreement.
This is what belongs in the agreement, why each section matters, and where Texas deals most often break down.
The Core Clauses, at a Glance
A well-drafted agreement reads in a predictable order. Each clause does a specific job:
| Clause | What it does |
|---|---|
| Parties & recitals | Identifies buyer and seller and the deal’s background |
| Definitions | Fixes the meaning of key terms so they aren’t argued later |
| Purchase & sale of assets | Describes what is sold, what is excluded, and the price |
| Assumed & excluded liabilities | Draws the line on which debts the buyer takes on |
| Representations & warranties | Each side’s factual promises about the business |
| Covenants | Promises about conduct before and after closing |
| Conditions to closing | What must be true before either side has to close |
| Indemnification | Who pays, and how, if a promise turns out false |
| Closing | Date, location, and the documents exchanged |
| Termination | When a party can walk, and the consequences |
| Governing law & miscellaneous | Texas law, dispute resolution, notices, amendments |
Identify the Parties and What’s Being Sold
Name the exact legal entities — not trade names — for both buyer and seller, with addresses and signature authority. Then describe the subject of the sale with precision. In an asset purchase, the most common structure for small and mid-sized Texas businesses, the agreement lists the specific assets included (equipment, inventory, real property, customer lists, contracts, goodwill, and intangibles) and just as importantly the assets excluded. Ambiguity here is the single most common source of post-closing fights.
Price, Payment Terms, and Earn-Outs
State the total purchase price, how it is paid, and when. Consideration can be cash, seller financing, buyer equity, or a mix. Two provisions deserve special care:
- Purchase-price adjustments account for changes in working capital or inventory between signing and closing, so the final number reflects the business actually delivered.
- Earn-outs tie part of the price to the business hitting agreed financial targets after closing. They bridge a valuation gap but must define the metric, the measurement period, and who controls the books precisely — earn-outs are litigation magnets when written loosely.
Assets, Liabilities, and the Tax-Clearance Step
The agreement must spell out which liabilities the buyer assumes (often accounts payable, specific leases, or assumed contracts) and which stay with the seller. In an asset deal the default is that the buyer takes only what it expressly assumes.
Texas adds a step here. Before closing, the buyer should obtain a Certificate of No Tax Due from the Texas Comptroller (Form 86-114, filed jointly). Under Texas Tax Code Section 111.020, a buyer can be held liable for the seller’s unpaid state taxes up to the purchase price unless it withholds enough of the price to cover them. Make the certificate a condition to closing so the burden sits where it belongs — on the seller.
Representations, Warranties, and Indemnification
Representations and warranties are the factual promises that let each side rely on the other. The seller typically warrants that the financial statements are accurate, that it owns the assets free of undisclosed liens, that there is no undisclosed litigation, and that it has authority to sell. The buyer warrants its authority and ability to pay. Disclosure schedules attached to the agreement carve out the known exceptions — and a complete schedule protects the seller as much as the buyer.
Indemnification is the remedy when a warranty proves false. It defines who compensates whom, for what, and within what limits — caps, baskets (a minimum threshold before claims count), and survival periods (how long after closing a claim can be brought). This is where a missed warranty becomes either a manageable adjustment or an expensive dispute.
Covenants, Confidentiality, and Non-Competes
Covenants govern behavior around closing: the seller agrees to run the business normally until close, to cooperate on consents, and often not to compete afterward. An NDA usually comes first, at the diligence stage, protecting the seller’s information if the deal falls through. For the mechanics of those confidentiality terms, see what matters in an NDA.
A covenant not to compete ancillary to the sale is enforceable in Texas under Business and Commerce Code Section 15.50 if it is reasonable in time, geography, and scope of activity. Sale-of-business covenants get more latitude than employee non-competes because the buyer is protecting purchased goodwill. (The FTC’s 2024 attempt to ban most non-competes was struck down and abandoned by 2026, so Texas state law again controls.)
Closing and Governing Law
The closing section sets the date and location and lists the documents delivered — bill of sale, assignment and assumption agreements, lease transfers, and any required consents. Specify that Texas law governs and choose a dispute-resolution path. Confirm every closing condition is met before signing: a clean tax certificate, third-party consents, and accurate disclosure schedules.
For the larger picture of how the agreement fits into the deal, see our step-by-step guide to buying a business in Texas.
Frequently Asked Questions
Is a purchase agreement the same as an asset purchase agreement?
In most small-business Texas deals, yes — the business purchase agreement is structured as an asset purchase agreement (APA) because buyers acquire specific assets rather than the entire entity. A stock or membership-interest purchase uses a different form and transfers the company whole.
What is the difference between representations and indemnification?
Representations and warranties are the factual promises each side makes. Indemnification is the contractual remedy — who pays and how much — when one of those promises turns out to be false.
Do I need to file anything with the state before closing?
Request a Certificate of No Tax Due from the Texas Comptroller before closing to avoid inheriting the seller’s unpaid state taxes. Depending on the deal you may also need to update entity filings and assign permits or licenses.
Can I use a template purchase agreement?
A template can show you the structure, but the clauses that protect you — asset descriptions, assumed liabilities, warranties, indemnification limits, and the non-compete — are deal-specific. Generic language is where money is lost.
Buying or selling a Texas business? Reidel Law Firm drafts and negotiates purchase agreements on a flat fee, with direct attorney access from first draft to closing — see how the business sale package works.
