Question 1

Should I buy the assets or the LLC interests of a Texas business?

Accepted Answer

For most Texas buyers the answer is assets, not equity. An asset purchase lets the buyer take the assets it wants, leave known and unknown liabilities behind, obtain a new depreciable basis in the acquired property, and start with a clean corporate history. A membership-interest or stock purchase transfers the entity itself — every asset AND every liability, including tax audits, litigation exposure, employment claims, and off-balance-sheet obligations — which is usually acceptable only for a sophisticated buyer, a regulated business whose licenses do not transfer, or a transaction with representations-and-warranties insurance in place. Lone Star Counsel structures both, and the choice is a matter of tax, liability, and diligence analysis rather than preference.

Question 2

Who prepares an Asset Purchase Agreement in Texas?

Accepted Answer

The Asset Purchase Agreement (APA) is prepared by counsel — typically buyer's counsel — after the parties have signed a Letter of Intent that resolves price, structure, and the key business terms. In a Texas transaction the drafting attorney should have both business-transactional and Texas-specific experience: the APA must interact correctly with the Texas Business Organizations Code, Texas bulk-transfer and tax-clearance rules, Texas real-property statutes if real estate is included, Texas non-compete law, and the Texas Uniform Commercial Code. Lone Star Counsel prepares APAs for buyers and sellers of Texas businesses ranging from single-location professional practices to multi-unit operators.

Question 3

What should be included in a Texas Asset Purchase Agreement?

Accepted Answer

A complete Texas APA identifies the acquired and excluded assets, the assumed and excluded liabilities, the purchase price and its allocation (see IRC §1060), the payment mechanics, closing conditions, representations and warranties, indemnification and survival terms, restrictive covenants, employee treatment, transition services, disclosure schedules, and a defined-terms and interpretation section. The document is also the vehicle for third-party consents (landlord, franchisor, key contracts), lien releases, transfer of intellectual property, transfer of permits and licenses, and any escrow, holdback, or earn-out mechanics. In Texas, the APA is generally accompanied by a bill of sale, assignment-and-assumption agreements, real-property conveyance documents where applicable, and officer's and secretary's certificates.

Question 4

What liabilities does a buyer assume in a Texas asset purchase?

Accepted Answer

Only the liabilities specifically identified as 'Assumed Liabilities' in the APA — and any liabilities that transfer by operation of law regardless of the contract. In Texas the categories of liability that can attach to a buyer despite an asset-only structure include (1) successor liability for products, environmental, and certain employment claims, (2) unpaid Texas sales, use, franchise, and unemployment taxes if a tax-clearance certificate is not obtained, (3) obligations under assumed contracts and leases from the transfer date forward, and (4) claims under bulk-transfer or fraudulent-conveyance theories in narrow circumstances. A well-drafted APA and a disciplined closing process manage each of these.

Question 5

How is purchase price allocated in a Texas business acquisition?

Accepted Answer

Purchase price allocation is governed by Section 1060 of the Internal Revenue Code and reported by both parties on IRS Form 8594. The parties allocate the total consideration among seven asset classes — from cash and cash-equivalents at the top to goodwill and going-concern value at the bottom — using the residual method. Because the allocation drives the buyer's depreciation and amortization deductions AND the character of the seller's gain (ordinary vs. capital), it is typically negotiated in the APA rather than left to post-closing determination. Lone Star Counsel coordinates the legal allocation with the parties' tax advisors so the reported Form 8594s match.

Question 6

Should the buyer or the seller draft the Asset Purchase Agreement?

Accepted Answer

The buyer's counsel usually drafts the APA. Drafting confers meaningful control: the buyer's counsel sets the definitions, the default allocation, the scope of the assumed liabilities, the survival periods, the indemnification caps and baskets, and the disclosure-schedule framework. Seller's counsel then negotiates. In smaller transactions — under roughly $2 million — the parties sometimes agree to a joint-draft or use a seller-prepared template to save costs, but the leverage disadvantage to the non-drafting party is real and should be evaluated deliberately.

Question 7

What happens to employees when a Texas business is sold?

Accepted Answer

In an asset purchase, employees do not automatically transfer with the assets. Practical practice is that the buyer terminates the seller's employees at closing and rehires the ones it wants on the buyer's payroll effective the next business day. This structure requires attention to WARN Act notice thresholds for larger workforces, Texas final-wage timing under the Texas Payday Act, treatment of accrued PTO under seller's policies, transfer of benefit-plan enrollment (often via a new plan on the buyer's side), and Section 338 or asset-vs-equity treatment of qualified retirement plans. Restrictive covenants for key employees — non-compete, non-solicit, confidentiality — are typically executed at closing rather than being assumed from prior employment.

Question 8

Can the seller finance part of the purchase price in a Texas asset purchase?

Accepted Answer

Yes — seller financing is common in Texas business sales, particularly for transactions under $10 million, professional-practice sales, and family or management buyouts. The seller carries a portion of the price through a promissory note, secured by the acquired assets under Texas Business & Commerce Code Article 9, sometimes personally guaranteed by the buyer's principals, and often subordinated to a senior lender. The APA and the seller-note package should address payment terms, prepayment rights, default remedies, offset against indemnification obligations, and coordination with any senior lender's intercreditor requirements.

Question 9

Should I sign an LOI before hiring an attorney in a Texas business acquisition?

Accepted Answer

No. The Letter of Intent — even when labeled 'non-binding' — sets the price, the structure (asset vs. equity), exclusivity, the diligence period, and the framework for the definitive agreement. Provisions the parties treat as boilerplate at the LOI stage frequently reappear as fully binding terms in the APA that the non-drafting party then cannot re-negotiate without appearing to move goalposts. Engaging counsel before the LOI is signed is one of the highest-leverage decisions in the transaction. Lone Star Counsel reviews LOIs on rapid turnaround to preserve deal timing.

Question 10

What due diligence should I conduct before buying a Texas business?

Accepted Answer

Buyer diligence in a Texas transaction typically spans (1) financial — quality of earnings, working-capital norms, and revenue concentration; (2) legal — corporate records, entity good standing with the Texas Secretary of State, litigation, permits and licenses, real estate title, environmental, and material contracts; (3) tax — Texas franchise, sales & use, unemployment, and property tax clearance; (4) employment — I-9 compliance, wage-and-hour exposure, restrictive covenants, and benefit-plan liabilities; (5) intellectual property — registered and common-law marks, trade secrets, and IP assignments from employees and contractors; and (6) operational — customer contracts, supplier concentration, and systems. Diligence findings are captured on the seller's disclosure schedules and drive representation carve-outs, indemnity coverage, and purchase-price adjustments.

Question 11

What is the difference between an asset purchase and a stock or equity purchase in Texas?

Accepted Answer

An asset purchase transfers specific assets and specifically assumed liabilities via a bill of sale, assignments, and (where applicable) real-property deeds — the buyer selects what it takes. A stock or equity purchase transfers the ownership of the entity itself — every asset and every liability comes with it, by operation of law, unless separately restructured before closing. Texas transactions favor asset purchases for tax and liability reasons; equity purchases are used when licenses do not transfer, when a specific contract has a change-of-control restriction that survives an asset transfer, or when the seller demands equity treatment for capital-gains reasons and the parties negotiate representations-and-warranties insurance to close the diligence gap.

Question 12

How long does a typical Texas asset purchase take from LOI to closing?

Accepted Answer

For a transaction between roughly $1 million and $20 million, the typical timeline from executed LOI to closing is 60 to 120 days. Diligence and definitive-agreement drafting run in parallel and consume the first 45 to 75 days; consents, financing contingencies, and pre-closing conditions absorb the remainder. Regulated industries (healthcare, financial services, franchise systems), SBA-financed transactions, and deals with real estate typically extend the timeline by 30 to 60 days. Lone Star Counsel builds the closing calendar at LOI stage so timing risks are identified before they become critical-path issues.

Question 13

What is a Section 1060 allocation and why does it matter?

Accepted Answer

IRC §1060 requires the parties to a business asset acquisition to allocate the purchase price among seven categories of assets using the 'residual method' — cash, actively traded securities, accounts receivable, inventory, tangible personal property, intangible property (Section 197 intangibles), and goodwill/going-concern value. The allocation determines the buyer's future depreciation and amortization deductions and the character of the seller's gain (ordinary income vs. capital gain). Buyers generally want more allocated to inventory and depreciable equipment; sellers generally want more allocated to goodwill. The negotiated allocation is memorialized in the APA and reported by both parties on IRS Form 8594.

Question 14

Do I need a title company or a business escrow for a Texas asset purchase?

Accepted Answer

It depends on whether real estate is included. If the transaction includes Texas real property, a Texas title company issues title insurance and typically handles the closing as escrow agent for the entire transaction. If no real estate is involved, the parties often close directly attorney-to-attorney with the buyer's funds held in an attorney trust (IOLTA) account or with a bank or dedicated business-escrow provider handling holdbacks and post-closing escrow funds. Choice of closing mechanic is negotiated in the APA.

Question 15

What are the standard representations and warranties in a Texas Asset Purchase Agreement?

Accepted Answer

Seller representations typically cover organization and good standing, authority and enforceability, title to the acquired assets, absence of liens, financial statements, absence of undisclosed liabilities, taxes, litigation, compliance with law, permits and licenses, material contracts, employee matters, benefit plans, intellectual property, real property, environmental matters, and — often — a catch-all 'full-disclosure' representation. Buyer representations are narrower and cover authority, financing, and no-conflicts. Each representation is generally qualified by the disclosure schedules and by 'knowledge' and 'materiality' qualifiers negotiated in the APA.

Question 16

What is representations and warranties insurance and when should I get it?

Accepted Answer

Representations and warranties (R&W) insurance is a policy — typically buyer-side — that indemnifies the buyer for losses arising from a breach of the seller's representations in the APA. It is used most commonly in transactions above roughly $10 million and in deals where the seller (often private equity or a retiring owner) wants a clean exit without a large indemnification escrow. Premiums typically run 3–5% of the coverage limit with a retention of 0.5–1% of enterprise value. R&W insurance is not standard for smaller Texas transactions, but Lone Star Counsel evaluates it in every mid-market matter.

Question 17

Can I use a non-compete in a Texas business sale?

Accepted Answer

Yes. Texas Business & Commerce Code §15.50 permits non-competition agreements in the business-sale context and is generally more permissive than in the employment context. The typical seller non-compete in a Texas APA runs three to five years, restricts a defined geography (often statewide or nationwide for a technology or professional-services business), and covers competition, solicitation of customers, and solicitation of employees. Enforceability depends on reasonableness of duration, geography, and scope of restricted activity relative to the consideration paid and the interest protected — Lone Star Counsel drafts the covenant to match those factors.

Question 18

Does Texas still have a bulk-sales law?

Accepted Answer

Texas repealed its version of UCC Article 6 (Bulk Transfers) in 1993, so the classical bulk-sales notice regime no longer applies to most Texas asset purchases. Two important successor-style rules remain: (i) Texas Tax Code §111.020 requires the buyer of a business to withhold a portion of the purchase price sufficient to satisfy the seller's unpaid Texas sales, use, franchise, and unemployment taxes unless the seller produces a certificate of no tax due from the Comptroller, and (ii) common-law successor-liability doctrines may still apply in narrow circumstances (fraudulent transfer, mere continuation, de facto merger). Both are managed through closing conditions in the APA.

Question 19

Does Texas sales tax apply to the sale of a business?

Accepted Answer

The 'occasional sale' exemption in Texas Tax Code §151.304 generally exempts the sale of an entire operating business (or an identifiable segment) from Texas sales and use tax — provided the transaction meets the statutory requirements. Tangible personal property sold outside the exemption, or in a partial-asset sale that does not qualify, may be subject to sales tax. Buyers routinely request a Texas Comptroller certificate of no tax due and structure the transaction to qualify for the occasional-sale exemption; sellers of specific asset categories (motor vehicles, aircraft, alcohol) require separate treatment.

Question 20

What is a working-capital adjustment at closing?

Accepted Answer

A working-capital adjustment is a purchase-price mechanic that trues up the price after closing to reflect the actual net working capital delivered to the buyer versus a negotiated target. The parties agree on a 'target working capital' at signing (often a trailing-twelve-month average); at closing they estimate; within 60–90 days after closing they reconcile against the actual balance sheet; and the price is adjusted dollar-for-dollar. The mechanic is standard in transactions above roughly $1 million and prevents the seller from stripping working capital between signing and closing.

Question 21

What is an earn-out and when should I use one?

Accepted Answer

An earn-out is contingent consideration paid to the seller after closing based on the acquired business's post-closing performance — typically revenue, EBITDA, or milestone-based. Earn-outs bridge valuation gaps when the parties disagree on the projected future performance and are common in professional-practice sales, technology transactions, and deals with meaningful customer-concentration risk. They introduce significant post-closing conflict potential (operating covenants, allocation of shared costs, accounting methodology) and require careful drafting. Lone Star Counsel uses earn-outs where they solve a valuation problem and avoids them where a fixed-price with escrow would produce the same commercial outcome.

Question 22

What is an escrow holdback in a Texas APA?

Accepted Answer

An escrow holdback is a portion of the purchase price (typically 5–15%) that is held by a neutral escrow agent after closing to satisfy the seller's post-closing indemnification obligations, working-capital adjustments, or specific identified risks. Escrows generally run 12–24 months for general indemnity matters and longer for specific carve-outs (taxes, environmental, IP). The APA specifies the escrow amount, the release schedule, the claims process, and the dispute-resolution mechanism. A well-drafted escrow provides real security to the buyer without unduly encumbering the seller's proceeds.

Question 23

Do I need franchisor or landlord consent to close a Texas asset purchase?

Accepted Answer

Almost always. If the target operates under a franchise agreement, the franchisor's consent is a condition to transfer and typically requires the buyer to sign a new franchise agreement, pay a transfer fee, and complete franchisor training. If the target occupies leased space, the landlord's consent to assignment (or issuance of a new lease) is required in the great majority of Texas commercial leases. Both consents should be pursued in parallel with definitive-agreement drafting; either can extend the timeline by 30–60 days and either can materially change the deal economics.

Question 24

What licenses transfer with a Texas business in an asset purchase?

Accepted Answer

As a general rule, professional and regulatory licenses do not transfer. Texas medical, dental, veterinary, legal, engineering, real-estate-broker, and similar professional licenses are personal to the licensee. Facility licenses (pharmacy permits, ambulatory-surgery-center licenses, TABC permits, DOT authorities) generally require an application by the buyer and issuance in the buyer's name — sometimes with a transition period during which the seller's license remains in effect. City and county licenses, DBA registrations, sales-tax permits, and unemployment-tax accounts all require buyer-side registration. Lone Star Counsel prepares a licensing checklist at LOI stage in every regulated-business transaction.

Question 25

How do I protect trade secrets during due diligence?

Accepted Answer

The mutual non-disclosure agreement signed before diligence is the first line of protection, but a well-drafted NDA does more than restrict use — it defines the diligence perimeter, limits access to a small circle of named recipients, requires the recipient to identify representatives before they gain access, and expressly prohibits reverse engineering, poaching of employees, and use of the information in the recipient's own business. Sensitive information (customer lists, source code, algorithms, pricing) is staged into a clean-team review, produced last, and often watermarked. Lone Star Counsel negotiates NDAs and structures diligence phasing to reflect the sensitivity of the information at each stage.

Question 26

What happens to customer contracts when a Texas business is sold?

Accepted Answer

In an asset purchase, customer contracts are typically 'assigned' from the seller to the buyer via an assignment-and-assumption agreement — but many contracts require the customer's consent to assignment, particularly those that contain change-of-control provisions or that were with the seller as a specific licensed professional. Contracts with no assignment restriction transfer with a simple assignment and notice to the customer; restricted contracts require written consent obtained before closing. Government contracts and long-term service agreements are frequently the diligence items with the greatest potential to affect deal timing.

Question 27

Should the buyer form a new LLC to acquire the assets?

Accepted Answer

Yes — in nearly every case. Acquiring assets into a newly formed 'NewCo' LLC provides (i) a clean corporate record with no historical liabilities, (ii) a discrete asset-protection perimeter for the acquired business, (iii) a clean entity for post-closing financing and future exit, and (iv) tax-election optionality (Subchapter S election, disregarded-entity vs. partnership treatment, tax-year selection). The NewCo is generally formed 30–60 days before closing so it can execute financing documents, secure permits and licenses, and open bank accounts under its own EIN. Lone Star Counsel forms the acquiring entity as part of every buyer-side transaction.

Question 28

What is successor liability and how do I avoid it in a Texas asset purchase?

Accepted Answer

Successor liability is a doctrine under which a buyer of assets is held responsible for a seller's obligations despite the parties' intent that liabilities remain with the seller. Texas recognizes four traditional exceptions to the general no-successor-liability rule: (1) express assumption in the APA, (2) de facto merger, (3) mere continuation of the seller, and (4) fraudulent transfer to escape liability. Additional statutory successor rules apply to certain taxes, unpaid wages, and (in narrow circumstances) product-liability and environmental claims. A well-drafted APA, arm's-length pricing, distinct ownership and management, and disciplined use of the Texas Comptroller's tax-clearance process manage each exception.

Question 29

Do I need SBA financing approval before signing the APA?

Accepted Answer

Not before signing — but the APA must be structured to be SBA-fundable if the buyer intends to use SBA 7(a) financing. Key SBA requirements include: no seller retention of ownership post-closing (SBA generally disallows seller equity rollovers, though a subordinated seller note with a 24-month standby is permitted), full escrow of the seller note under specific SBA terms, restrictions on earn-outs, life-insurance requirements for owners of the buyer, and specific personal-guaranty rules. The APA is drafted with an 'SBA compliance' section and the LOI should identify SBA financing so the lender's underwriter can be engaged in parallel with diligence.

Question 30

How is intellectual property transferred in a Texas asset purchase?

Accepted Answer

Trademarks, copyrights, patents, and domain names transfer through a written assignment executed at closing and recorded with the applicable registry (USPTO for federal marks and patents, U.S. Copyright Office for federal copyrights, the registrar for domain names). Trade-secret protection travels with the acquired confidential information and requires the buyer to continue reasonable measures to preserve secrecy. Common-law marks (unregistered marks used in commerce) also transfer, along with the associated goodwill. Lone Star Counsel prepares the IP assignment package as part of every business-acquisition closing and files USPTO and Copyright Office recordations post-closing.

Texas Asset PurchaseAgreement Attorney.

Buying or Selling a Texas Business? Start With the Right Transaction Structure.

We Represent Texas Business Buyers.

We Represent Texas Business Sellers.

What a Texas Asset Purchase Agreement should address.

Parties and transaction structure

Purchased and excluded assets

Assumed and excluded liabilities

Purchase price and payment mechanics

Due diligence and access

Representations and warranties

Pre-closing covenants and closing conditions

Closing deliverables

Post-closing covenants

Indemnification and remedies

Restrictive covenants

Dispute and enforcement terms

The Asset Purchase Agreement Is Only One Part of the Closing.

Six steps, deliberately taken.

Transaction Strategy Conference

Deal Framework and Issue List

Due Diligence and Risk Review

Drafting and Negotiation

Closing Preparation

Closing and Post-Closing Implementation

Attorney-CPA perspective for the structure behind the contract.

Business Succession Planning and the sale of a business.

Why Choose Lone Star Counsel?

Answers before you sign.