Caps and Baskets: How Buyers and Sellers Negotiate Risk in a Business Sale
A beautifully drafted set of seller promises is worth very little if the cap is too low to recover under or the basket is structured so you can never reach it. This…
Buying a business usually means buying a set of relationships: customers, employees, a landlord, suppliers and sometimes a franchisor.
The financial review tells you whether the business earns what the seller says it does. The legal review tells you whether those relationships, assets and licenses will still be there the day after closing, and who pays if something from before the sale comes back.
We represent individuals buying their first company, owners adding a competitor or a new location, and holding companies building a group of businesses.
What We Do for Buyers
Deal Structure
Choosing between an asset purchase and a purchase of the company, and forming the entity that will own the business.
Letter of Intent
Drafting or reviewing the LOI so price, structure and the key protections are settled before diligence begins.
Legal Due Diligence
Lien, litigation and entity searches, and review of the contracts, lease, permits and licenses.
Purchase Agreement
Negotiating the agreement, the bill of sale, assignments, any seller note, the non-compete and the seller's transition terms.
Lender Coordination
Meeting SBA and conventional lender conditions so funding is ready on closing day.
Consents and Transfers
Landlord consents, contract assignments, license transfers and franchisor approvals.
Choosing the Structure
Most small business purchases in Texas are asset purchases. The buyer forms a new company, usually an LLC, and that company buys the equipment, inventory, customer lists, phone numbers, website and goodwill. Liabilities the buyer does not agree to take on stay with the seller.
Buying the seller's stock or membership interests can make sense when the business holds licenses, government contracts or customer agreements that can't easily be transferred. The buyer then inherits the company's history, so the diligence and contract protections need to be stronger.
Protecting the Purchase Price
The purchase agreement is where a buyer's protection lives. The seller makes statements about the business, called representations and warranties, and agrees to cover the buyer's losses if they turn out to be wrong. When part of the price is paid through a seller note, we include the right to offset valid claims against the note payments, which gives the buyer a practical remedy.
Texas law can also make a buyer responsible for the seller's unpaid state taxes. A buyer who doesn't hold back enough of the price can be liable for the seller's unpaid sales and franchise taxes. We make a certificate from the Texas Comptroller showing no tax is due a condition of closing, or hold back part of the price until it arrives.
From Offer to Ownership
Offer and Letter of Intent
You and the seller agree on the main terms, and exclusivity gives you time to investigate.
Diligence and Financing
Your CPA reviews the numbers, we review the legal side, and your lender underwrites the loan.
Purchase Agreement
We negotiate the agreement and schedules with the seller's attorney.
Closing Preparations
Consents, lien payoffs, the tax certificate and the lender's closing conditions are lined up.
Closing Day
Documents are signed, funds move, and the business is yours.
Transition
The seller helps introduce you to employees, customers and vendors under the agreed transition terms.
Frequently Asked Questions
Have a question that isn't answered here? Call us at (817) 631-8842 or send a message.
Ask a QuestionCan I keep the business name, phone numbers and website?
In an asset purchase, those are usually listed as purchased assets and transfer to you at closing. You will still need to move the accounts, domain and listings into your name, and file an assumed name certificate if your new company will operate under the existing business name.
What happens to the seller's employees?
In an asset purchase, employees usually stay employed by the seller's company until closing, and the buyer then offers them jobs on its own terms. Key employees should be part of the plan well before closing, so they know what to expect and are more likely to stay.
What if the business leases its location?
Most commercial leases require the landlord's consent before they can be assigned to a buyer, and landlords often ask for financial information and a personal guaranty from the new owner. We start that conversation early, because a slow landlord is a frequent reason closings slip.
What protects me if I find a problem after closing?
The purchase agreement. The seller's representations, the indemnification section and, when there is a seller note, the right to offset valid claims against note payments give you ways to recover without starting over in court. How long those protections last and how much they cover are negotiated, so they deserve attention before you sign.
More in Business Acquisitions
- Mergers and AcquisitionsBuyer and seller representation in Main Street and lower middle market deals.Learn More
- Selling a BusinessPreparation, negotiation and closing for owners selling their companies.Learn More
- Asset PurchasesBuying or selling a company's assets while the seller keeps the entity.Learn More
- Stock PurchasesBuying a corporation's shares, with its contracts and its history intact.Learn More
- Membership Interest PurchasesBuying an LLC's ownership under a membership interest purchase agreement.Learn More
- Partner BuyoutsBuying out a co-owner, or selling your stake, on clear terms.Learn More
- SBA-Financed AcquisitionsPurchase agreements and closings built around SBA 7(a) lender requirements.Learn More
- Seller FinancingSeller notes with clear payment terms, security and remedies for both sides.Learn More
- Earn-OutsContingent price terms defined clearly enough to measure, report and pay.Learn More
- Rollover EquitySellers reinvesting in the buyer, on terms that protect the stake they keep.Learn More
- Selling to Private EquityRepresenting owners who sell to private equity firms and PE-backed platforms.Learn More
- Search Funds and SponsorsVehicles, investor terms and acquisitions for searchers and independent sponsors.Learn More
- Franchise ResalesBuying or selling an existing franchise location, with the franchisor's approval.Learn More
- Letters of IntentSetting the price, structure and key protections before the deal is drafted.Learn More
- Due DiligenceFinding the legal issues in a business before the buyer owns them.Learn More
- Purchase AgreementsThe negotiated terms that decide who carries the risk in a business sale.Learn More
- Closing an AcquisitionChecklists, payoffs, funds flow and the follow-up that finishes a deal.Learn More
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