Selling a business you have spent years building is different from any other financial transaction. The legal steps you take before going to market, during negotiation, and at closing determine not just what you receive, but whether the deal holds together after it closes.
Here is what Texas small business owners need to know before putting their company on the market.
Get your legal house in order before listing
Before engaging a broker or approaching buyers, conduct an internal legal review of your business. Confirm that all entity filings are current with the Texas Secretary of State, that your operating agreement or shareholder agreement does not contain transfer restrictions that could block or complicate a sale, and that key contracts with customers, vendors, and landlords are assignable. Gaps discovered by a buyer during due diligence give them leverage to reduce the price or walk away. Discovering them yourself first gives you time to address them.
Understand what you are actually selling
Sellers often focus on the headline purchase price without analyzing what they are actually transferring and what liabilities they are retaining. In an asset sale, you may retain the legal entity and any liabilities attached to it. In a stock sale, the buyer assumes the entity in full. Each structure has different tax consequences, and the right choice depends on your specific circumstances. This decision should be made with both legal and tax counsel before you begin negotiations.
The purchase agreement protects you after closing
The purchase agreement is where deals get made or broken. The representations and warranties you make in that agreement about the condition of the business can create post-closing liability if they turn out to be inaccurate. Indemnification provisions determine how disputes are resolved after closing. Non-compete clauses restrict what you can do next. Escrow or holdback arrangements can delay when you receive part of your proceeds. Every one of these provisions is negotiable, and the terms that appear in the first draft submitted by the buyer’s counsel are not the terms you have to accept.
Earnouts add risk that is often underestimated
If part of your purchase price is structured as an earnout, meaning you receive additional payments based on the business’s future performance after the buyer takes over, you need to understand exactly how that performance will be measured and what control the buyer has over the decisions that affect it. Earnouts are a common feature of small business deals and a common source of post-closing disputes.
Plan for the transition period
Most buyers of small businesses require a transition period during which the seller remains involved to hand over operations, introduce key relationships, and support continuity. The length of that period, what you are required to do, and whether you are compensated for it are all negotiable points that belong in the purchase agreement, not in a side understanding reached at the closing table.
Selling a business is a process that rewards preparation. Owners who engage legal counsel early consistently close deals on better terms than those who wait until a buyer is already at the table.
Filippov Law Group, PLLC represents business sellers in Texas and Utah, from initial preparation through closing. If you are considering a sale or have received an offer, contact our Houston office at (832) 305-5529 or visit filippovlaw.com/contact to discuss your options.