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Selling a Business or Buying a Business in Texas

Selling a Business or Buying a Business in Texas – from the Legal Perspective – Action Items before You Decide to Buy or Sell

Are you planning to sell your business? Are you planning to purchase a business? There are many ways to make the sale or purchase of a business faster and more profitable, with a little pre-planning. Here are some of the legal-related matters that you should consider in advance.

Get a Jump on Due Diligence.

If you are considering selling your business, even if a sale is years away, now is the time to have an attorney look at certain corporate records:

  • Your company minute book. Is the ownership properly documented, with share certificates if required? Can you locate all share certificates? Were partner buy-backs or share redemptions documented properly? Have your annual meetings and regular meetings been properly documented? Are you registered to do business as a foreign entity in each state in which you do business? Is your registered agent as listed with the Texas Secretary of State up to date?

  • Your company’s contracts with its customers. Do your contracts protect your company with payment dispute language, limited warranties, limits of liability and proper indemnities? Are your contracts freely assignable to a new owner?

  • Your company’s contracts with its employees. Do you have enforceable confidentiality, intellectual property ownership, non-compete and non-disparagement agreements with your key employees?

  • Your real property. What type of approval will your landlord require for you to be able to assign your lease? Are there any title issues on owned real property that need to be remedied? Are there any possible environmental issues that need to be addressed?

  • UCC filings on record for you company. Have you received releases on all debts previously paid off by the company?

  • Guarantees. Do you know which accounts and obligations that the owners have personally guaranteed? For instance, vendor accounts, equipment leases, lines of credit and commercial real property leases.

  • Government Approvals. Do you have any licenses, permits, registrations or other obligations under which you will need to get government approval for transfer or which a buyer will need to obtain in its own name?

  • Electronic Copies of All Contracts. Do you have complete, signed electronic copies of all of your written contracts? Do you have complete electronic copies of all leases, permits, insurance policies, tax returns, intellectual property registrations, warranties and legal records that pertain to your business?

Buyer’s Initial Due Diligence is Critical.

Buyers, do you have a well-organized, comprehensive due diligence list prepared with the help of your attorney, CPA, IT professional, insurance broker and head of operations to provide to the Seller?

Seller’s Due Diligence on Buyer may be Important Too.

Sellers considering owner-financing a portion of the sales price (such as through a promissory note), utilizing an earnout, holdback or working for the new company after the sale may also consider performing due diligence with respect to the Buyer to evaluate risk.

Non-Disclosure Agreements (“NDAs”) are Essential.

Non-disclosure agreements are essential to have in place before the buying and selling parties provide each other with information about their respective companies. Even with a non-disclosure agreement in place you will want to be careful not to disclose trade secrets and other valuable information that, in the wrong hands, could damage the value of your company.

Letter of Intent (“LOI”) to Set Expectations.

Early in the process of selling your business, a Letter of Intent generally serves two main purposes: (a) to set the initial deal point expectations of the parties (sales price, terms) while due diligence is being completed, and (b) to ensure that the parties are clear as to which terms are binding and which are non-binding. Typically, the parties do not want the actual sale to be binding until the final agreement is signed, but may want provisions on confidentiality and exclusivity to be enforceable. The LOI helps to avoid inadvertently creating a binding contract for the sale or purchase of a business, while still allowing the parties to know that the other party is serious, before investing in the legal, accounting and other costs they will expend prior to coming to the closing table.

Tax Strategy in Buying or Selling a Business is Important to Maximizing Deal Value.

Both buyers and sellers should meet with their respective CPAs or tax counsel when first contemplating buying or selling a business, and certainly prior to signing an LOI, to evaluate the preferred acquisition form (for instance: stock sale, asset sale, merger), net results and allocation of purchase price for tax purposes.

We are business law attorneys in The Woodlands, Texas, focusing on contracts law, contract review, contract negotiation, partnership and shareholder matters, corporate governance and mergers and acquisitions. If you are buying a business, selling your business, starting a business, have a need for review of a contract, or just need business legal advice, please contact us. We serve clients in Montgomery County and Harris County, Texas, and are convenient to Conroe, Spring, Willis, Magnolia, Woodforest, The Woodlands, and the Houston metropolitan area.

Disclaimer:

Information on this website is for informational and educational purposes only and is not offered as legal or tax advice. No attorney-client relationship is created, nor may you rely on this information. We seek to keep information up-to-date, but laws may change.