Buying or Selling a Dallas Business: Texas-Specific Issues from LOI to Closing

The Dallas restaurateur who buys a successful neighborhood concept, takes possession on closing day, and gets a notice from the Texas Comptroller six months later for $180,000 in pre-acquisition sales tax liability did not skip steps deliberately. The seller’s CPA said everything was current. The asset purchase agreement contained an indemnification clause from the seller. The buyer paid the full purchase price at closing. None of that prevents the Comptroller from pursuing the buyer personally under Texas Tax Code § 111.020 for the seller’s unpaid sales tax up to the value of the purchase price. Texas-specific transactional traps catch buyers and sellers who treat their deal like a generic M&A transaction. A Dallas business law attorney handling business sales in Texas works through a checklist of state-specific requirements that do not exist in many other jurisdictions, and the cost of skipping any of them lands almost entirely on the buyer.

Here is what the path from LOI to closing actually looks like in Texas and where the state-specific issues sit.

Sales Tax Successor Liability Under Tax Code § 111.020

Texas Tax Code § 111.020 imposes the most significant state-specific buyer obligation in Texas business sales. When a person liable for tax sells the business or its stock of goods, the buyer must withhold from the purchase price an amount sufficient to cover the seller’s outstanding tax liability until the seller produces either a receipt showing payment or a Certificate of No Tax Due from the Comptroller.

A buyer who fails to withhold is personally liable for the seller’s unpaid tax up to the value of the purchase price, including any assumption of indebtedness. The personal liability reaches the buyer’s other assets, not just the assets purchased.

The mechanics:

• The buyer and seller jointly submit Form 86-114, Joint Request for Certificate of No Tax Due, to the Texas Comptroller. Senate Bill 873 in 2021 consolidated the prior separate request forms into the joint submission. The form was further amended after Senate Bill 3 of 2023 to incorporate franchise tax responsibility questions.
• The Comptroller has 60 days to issue the Certificate of No Tax Due or a Statement of Account showing amounts due, extended to 90 days in some cases under § 111.020(c).
• If the Comptroller fails to issue the certificate or statement within the applicable period, the buyer is released from the withholding obligation under § 111.020(d).
• If a Statement of Account is issued showing amounts due, the buyer withholds the stated amount from the purchase price until the seller produces a paid receipt.

The four-year statute of limitations under § 111.201 begins running on the later of the sale date or the date of determination against the seller, which means the buyer’s exposure persists for years after closing.

The protection from § 111.020 only runs to the buyer. Sellers remain liable for their own pre-sale tax obligations regardless of whether the buyer obtains a Certificate of No Tax Due. Agri-Plex Heating & Cooling, LLC v. Combs and similar cases have held buyers liable for sales tax liabilities they did not know about at closing, where the parties had not requested clearance.

Franchise Tax Clearance for Stock and Equity Sales

Texas Franchise Tax clearance becomes important for transactions structured as stock or membership interest sales, where the entity itself continues and carries its tax obligations forward.

Form 05-359, Certificate of Account Status, is the Texas Comptroller’s franchise tax clearance document. The certificate confirms the entity is in good standing for franchise tax purposes. Buyers in stock deals should obtain a current Certificate of Account Status during diligence to confirm:

• The entity has filed all required franchise tax reports
• All Public Information Reports and Ownership Information Reports are current
• No franchise tax is owed
• The entity is not in forfeited status with the Secretary of State

A forfeited entity loses its right to do business in Texas, loses standing to sue or defend in Texas courts, and may lose the liability shield protecting its members or shareholders. Buyers acquiring a forfeited entity are buying problems that need to be resolved before any meaningful operations can continue.

For sellers preparing for a transaction, getting Franchise Tax filings current and obtaining a current Certificate of Account Status during the LOI phase reduces friction at closing and improves perceived value.

Asset Versus Stock Structuring Under the Texas Business Organizations Code

The asset-versus-stock decision in Texas carries the standard considerations (buyers prefer asset deals to limit assumed liabilities, sellers prefer stock or membership interest deals for tax reasons), with several Texas-specific overlays.

Asset sales avoid the assumption of unknown liabilities (subject to § 111.020 sales tax exposure and certain other successor liability theories), but require separate transfers of contracts, leases, licenses, and permits, many of which have anti-assignment provisions or third-party consent requirements.

Stock and membership interest sales preserve continuity of contracts, licenses, and historical entity status, but transfer all entity liabilities, known and unknown, to the buyer.

Texas Business Organizations Code provisions worth attention:

• BOC Chapter 10 governs mergers, conversions, and similar fundamental transactions
• BOC § 10.351 et seq. govern interest exchanges
• BOC § 21.456 governs corporate appraisal rights for shareholders dissenting from certain transactions
• BOC § 101.358 governs LLC member withdrawal and the consequences of unauthorized transfer of membership interests

LLC operating agreements often impose transfer restrictions on membership interests that operate independently of the BOC defaults. A buyer purchasing a Texas LLC needs to confirm the operating agreement permits the proposed transfer or obtain unanimous consent of remaining members where required.

TABC License Transfers for Restaurants and Bars

For Dallas restaurant and bar acquisitions, the Texas Alcoholic Beverage Commission license transfer is often the longest-pole-in-the-tent of the entire transaction.

TABC licenses do not transfer with the business. The buyer must apply for a new license in its own name, with processing typically running 60 to 90 days, and longer for certain license types or when local jurisdictions impose additional requirements.

The license categories most relevant for Dallas restaurant and bar transactions include:

• Mixed Beverage Permit (MB) for restaurants and bars serving distilled spirits
• Wine and Beer Retailer’s Permit (BG) for restaurants serving wine and beer only
• Beer Retail Dealer’s License (BE) for beer-only operations

The application process requires fingerprinting of all officers, directors, members, and significant owners; criminal background checks; financial disclosures; site approvals; and proof of legal possession of the premises. Local notice requirements add further timeline.

Many transactions structure around the TABC timeline through interim management agreements where the buyer manages the business under the seller’s existing license while the new application is pending. The structures have real legal exposure if not drafted carefully and may not be permitted by TABC in all circumstances. Buyers should not assume the management agreement workaround will be available.

DBA Filings and Assumed Name Certificates

Texas requires every entity doing business under a name other than its registered legal name to file an assumed name certificate. The filing is separate from the entity formation and is often missed in transactions.

Under BOC Chapter 71, registered entities (LLCs, corporations) file assumed name certificates with the Texas Secretary of State, while unincorporated businesses file with the county clerk in each county where the business operates.

For Dallas County businesses, assumed name certificates are filed with the Dallas County Clerk for unincorporated businesses, with a 10-year duration. The certificate identifies the entity behind the assumed name and the business address.

In a business sale, several DBA-related steps need attention:

• Confirm the seller’s existing assumed name certificates are current and properly filed
• For asset sales, the buyer files new assumed name certificates if continuing to operate under the existing trade name
• For stock or membership interest sales, the existing assumed name certificates remain valid but should be updated for any change in registered office or other recorded information
• Multi-county operations require filings in each county where the business operates

What a Dallas Business Law Attorney Watches in Diligence

A few specific issues recur across Dallas business sales.

Sales tax permit status. The Comptroller maintains records of every active sales tax permit. Confirming the seller’s permit is in good standing and that all sales tax returns have been filed avoids successor liability surprises.

Property tax obligations. Texas property taxes are collected at the county and special district level, and a tax sale for unpaid property taxes can affect business assets and real property included in the sale.

Lease consents and assignment provisions. Most Texas commercial leases require landlord consent for assignment, and many include change-of-control provisions that treat membership interest or stock sales as assignments.

Texas Workforce Commission account transfers. The seller’s TWC unemployment insurance account does not automatically transfer in asset sales but does carry forward in stock sales, with implications for the buyer’s experience rating and tax rate.

Pending litigation and threatened claims. Texas Citizens Participation Act considerations and Texas Business Court eligibility (for matters above $5 million) may affect how disputes get resolved if they arise post-closing.

Practical Steps for a Clean Texas Closing

The path from LOI to closing usually follows a predictable sequence in well-managed Texas transactions.

LOI phase. Structure decisions, valuation framework, and exclusivity. Initial diligence on Franchise Tax status and major contracts.

Diligence phase. Form 86-114 joint request for Certificate of No Tax Due submitted at least 60 days before targeted closing. Form 05-359 obtained for stock and equity transactions. Lease consents requested. TABC application started for restaurant and bar deals. Diligence on contracts, employment matters, and litigation.

Definitive agreement phase. Asset purchase or membership interest purchase agreement drafted with appropriate Texas-specific provisions including § 111.020 indemnification, BOC compliance representations, and lease assignment provisions.

Closing. Tax certificates in hand or appropriate escrow established for any unresolved tax exposure. TABC and other licenses transferred or interim management agreement in place. DBA filings updated. Bill of sale, assignment and assumption agreements, and other transfer documents executed.

Post-closing. Final TWC and tax authority notifications. Update of registered agent and address with Secretary of State. Customer and vendor notifications. Sales tax permit application for the buyer if required.

When to Bring in a Dallas Business Law Attorney

Texas business sales involve a combination of corporate, tax, regulatory, and real estate issues that intersect in ways generic transactional advice often misses. A Dallas business law attorney engaged at the LOI stage shapes the structure, the diligence, and the regulatory timeline in ways that protect the client through closing and into the post-closing period.

The Mundaca Law Firm advises Dallas buyers and sellers on small and mid-market business transactions, from initial structuring through definitive agreements, regulatory approvals, and closing. If you are evaluating an offer, considering an acquisition, or starting to plan an exit, a conversation before the LOI is signed is the most leveraged step in the process.