Most small business sales fall apart or go wrong for reasons that have nothing to do with price. The parties agree on a number early, shake hands, and then spend four months discovering that the lease cannot be assigned, that a key customer contract has a change-of-control clause, or that the seller’s handshake arrangement with a supplier does not transfer.
Buying a small business in Texas is a structuring exercise before it is a negotiation. The decisions made in the first two weeks about deal form, diligence scope, and liability allocation determine what the remaining months look like. Our business attorneys in Conroe handle these transactions for owners across Montgomery County. Here is the framework.
Asset Purchase or Equity Purchase
This is the first and most consequential decision, and buyers and sellers usually want opposite answers.
Asset purchase. The buyer acquires specified assets and assumes only specified liabilities. Everything not listed stays with the seller’s entity. Buyers prefer this because it leaves unknown liabilities behind and generally allows a stepped-up tax basis in the acquired assets.
Equity purchase. The buyer acquires the ownership interests in the entity itself. The entity continues with all of its contracts, licenses, and liabilities intact. Sellers prefer this because it produces a cleaner exit and often more favorable tax treatment.
The practical tiebreaker is frequently not tax. It is transferability. If the business depends on a license, a franchise agreement, a favorable long-term lease, or contracts that cannot be assigned without consent, an asset purchase means renegotiating all of it. An equity purchase preserves those relationships because the contracting party never changes, unless a change-of-control provision says otherwise.
Asset purchases do not always leave liability behind
Buyers often overestimate the protection. Texas recognizes successor liability in circumstances including express or implied assumption, a de facto merger, a mere continuation of the seller’s business, and transactions structured to defraud creditors. Certain tax obligations follow the business regardless of structure, and Texas has a successor liability provision for unpaid sales tax that catches unprepared buyers routinely.
A tax clearance certificate from the Texas Comptroller before closing is inexpensive and prevents a genuinely bad surprise.
Due Diligence That Is Worth the Time
Diligence on a small business should be proportionate. A checklist built for a nine-figure acquisition wastes money on a company with eight employees. These are the items that actually produce findings.
- Entity standing. Certificate of fact from the Secretary of State, franchise tax account status from the Comptroller, and confirmation that the entity is in good standing. Forfeited entities are common and fixable, but not at closing.
- UCC and lien searches. Filed liens on equipment and inventory frequently survive the seller’s belief that a loan was paid off.
- Real property and lease. Whether the lease is assignable, what consent is required, how much term remains, and whether a personal guaranty is attached. This is the single most common deal-killer in retail and service businesses.
- Customer concentration. If one client represents a large share of revenue, the purchase price assumption depends entirely on whether that relationship transfers.
- Contracts with change-of-control clauses. Read every material agreement for assignment and control provisions.
- Employment matters. Worker classification, unpaid overtime exposure, existing noncompete and confidentiality agreements, and whether key employees will stay.
- Licenses and permits. Health permits, occupational licenses, alcohol permits, and professional licensure. Some transfer, some must be reapplied for, and the timeline is rarely short.
- Litigation and claims. Pending suits, threatened claims, and open insurance matters.
- Financial verification. Tax returns compared against internal financials. Discrepancies between the two are informative in both directions.
- Intellectual property. Who owns the business name, the domain, the social accounts, and the customer list. In small businesses these are frequently held personally rather than by the entity.
Valuation and Price
Small business valuation is less scientific than sellers hope and less arbitrary than buyers claim. Most Montgomery County transactions in the small business range are priced as a multiple of seller’s discretionary earnings, which is net income adjusted for the owner’s compensation, personal expenses run through the business, and non-recurring items.
Multiples vary widely by industry, customer concentration, recurring revenue, and how dependent the business is on the owner personally. A business that runs without the owner commands a materially higher multiple than one where the owner is the primary relationship, the primary technician, and the primary salesperson. Sellers who want a strong price should begin reducing that dependency two years before listing.
Whatever the multiple, the adjustments have to be documented. A seller claiming $80,000 in add-backs without receipts is asking the buyer to pay a multiple on an assertion, and diligence will not support it.
The Documents
A small business transaction typically involves a letter of intent, a purchase agreement, and a set of closing deliverables.
The letter of intent is usually nonbinding as to the deal but binding as to confidentiality, exclusivity, and expense allocation. Those binding provisions deserve real attention, particularly exclusivity, which takes the seller off the market for a defined period.
The purchase agreement carries the representations and warranties, the indemnification framework, and the conditions to closing. In small transactions, the negotiation that matters most is the survival period for representations and the cap and basket on indemnification. These allocate risk for problems discovered after closing, and they are where an experienced counterparty quietly wins or loses the deal.
Closing deliverables commonly include bills of sale, assignment and assumption agreements, lease assignments with landlord consent, resignations of officers and directors, transfer of bank and merchant accounts, and any required third-party consents.
Seller financing and earnouts
Many small Texas businesses sell with a portion of the price carried by the seller. If you are the seller, that note should be secured, personally guaranteed where appropriate, and documented with a security agreement and UCC filing. An unsecured note from a buyer who then runs the business poorly is a common and avoidable disaster.
Earnouts tie part of the price to post-closing performance. They resolve valuation disagreements and create new ones, because the seller no longer controls the business generating the metric. If you use an earnout, define the metric precisely, specify the accounting method, and include operating covenants restricting how the buyer may run the business during the earnout period.
Noncompete Agreements in Texas
A noncompete from the seller is standard and generally enforceable in this context. Texas Business and Commerce Code Section 15.50 requires that a covenant be ancillary to an otherwise enforceable agreement and contain reasonable limitations as to time, geographic area, and scope of activity.
Covenants given in connection with the sale of a business are treated more permissively than employment noncompetes, because the seller received consideration for the goodwill being protected. Even so, the restrictions should be drawn to what the business actually needs. Overbroad covenants get reformed by courts, and a reformed covenant is a weaker one.
Note separately that Texas restricted certain healthcare noncompetes in 2025, so medical and dental practice transactions require specific attention to those provisions.
Montgomery County Practicalities
Local considerations shape these deals more than owners expect. Commercial leases in The Woodlands frequently include landlord consent requirements with approval standards that are more demanding than a standard reasonableness clause, and the consent process can add weeks.
Real property transfers require attention to the Montgomery County Appraisal District treatment and any special district or municipal utility district assessments, which vary considerably across the county and can affect operating costs materially. Where real estate is part of the transaction, the title and conveyance work should run in parallel with the business documents rather than after them.
Sellers should also connect the transaction to personal planning. A sale converts an illiquid business interest into liquid proceeds, which changes the shape of an estate plan substantially. That conversation belongs before closing, not after.
Frequently Asked Questions
Should I buy the assets or the entity?
Buyers usually prefer an asset purchase to limit assumed liabilities and obtain a stepped-up basis. The analysis shifts toward an equity purchase when critical contracts, leases, or licenses cannot be assigned.
Can I be liable for the seller’s debts in an asset purchase?
Sometimes. Texas recognizes successor liability where there is express or implied assumption, a de facto merger, mere continuation, or fraudulent structuring. Certain tax liabilities also follow the business, which is why a Comptroller tax clearance certificate is worth obtaining.
How long does a small business sale take in Texas?
Sixty to 120 days from letter of intent to closing is typical. Landlord consent, licensing transfers, and financing are the usual sources of delay.
Is a noncompete from the seller enforceable?
Generally yes, when it accompanies the sale of a business and contains reasonable limits on time, geography, and scope under Business and Commerce Code Section 15.50. Sale-of-business covenants are treated more favorably than employment covenants.
Do I need a written purchase agreement for a small deal?
Yes. The representations, indemnification terms, and allocation of pre-closing liabilities are the entire value of the document, and they are precisely what a handshake omits.
What if the business is owned by more than one person?
Check the company agreement or shareholder agreement for transfer restrictions, rights of first refusal, and drag-along or tag-along provisions. These frequently control whether a sale can proceed at all.
Your Next Step
The best time to involve counsel is before the letter of intent, when structure is still open. After the LOI is signed, most of the leverage on structure has already been spent.
Griffin & Cain, Attorneys at Law represents buyers and sellers in business transactions throughout Montgomery and Walker Counties. Schedule your consultation with business law attorney Robert S. Griffin before you sign anything. Contact our Conroe office today. We serve business owners in Conroe, The Woodlands, Montgomery, Magnolia, Willis, and Huntsville.
