Asset Purchase
A transaction structure in which the buyer acquires specified assets (and typically assumes specified liabilities) of a target business, rather than acquiring the target's equity. The selling entity continues to exist after closing, holding unsold assets, retained liabilities, and the purchase price.
An asset purchase is a transaction structure in which the buyer acquires specified assets (and typically assumes specified liabilities) of a target business, rather than acquiring the target's equity. The selling entity continues to exist after closing, holding the unsold assets, retained liabilities, and the purchase price.
Scope of "all or substantially all"
Texas requires shareholder approval for a sale of "all or substantially all" of a corporation's property and assets outside the usual and regular course of business. §§ 21.451(2), 21.455. Unless the certificate of formation sets a different vote as the code permits, approval takes the affirmative vote of at least two-thirds of the outstanding shares entitled to vote. § 21.457(a). For corporations the code defines the phrase, and the definition excludes a transaction after which the corporation continues to engage in one or more businesses or applies part of the consideration to a business it conducts after the transaction. § 21.451(2). The code has no parallel definition for LLCs, though an LLC's fundamental business transaction requires approval by a majority of all members under the default rule. § 101.356(c).
The Texas successor-liability statute (§ 10.254)
A disposition of property by a Texas domestic entity is not a merger or conversion for any purpose. § 10.254(a). Except as otherwise expressly provided by another statute, the person acquiring the property may not be held responsible or liable for a liability or obligation of the transferring entity that the person did not expressly assume. § 10.254(b). Together with a precise definition of assumed liabilities in the purchase agreement, the statute gives a buyer substantial protection against successor liability.
Limits on § 10.254 protection
§ 10.254 has limits. It yields to any other statute that expressly imposes liability. A transfer that is fraudulent as to the seller's creditors can be avoided, and a creditor can obtain a judgment against the first transferee for up to the value of the asset transferred. Tex. Bus. & Com. Code §§ 24.008, 24.009. Federal law can impose successor obligations in some settings. Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973). Because § 10.254(b) turns on express assumption, its text leaves little room for the common-law exceptions for implied assumption, de facto merger and mere continuation in claims governed by Texas law. Tex. Tax Code § 111.020 requires the purchaser of a business or its stock of goods to withhold enough of the price to cover state taxes the seller owes under Title 2 of the Tax Code until the seller produces a Comptroller receipt or a certificate that no amount is due. A purchaser that fails to withhold is liable for the required amount up to the value of the purchase price.
Asset purchases are common for sales of operating businesses where the buyer is paying primarily for operating assets and goodwill, or where the seller has contingent liabilities the buyer wishes to leave behind. The seller's tax attributes, such as net operating loss carryforwards, stay with the seller. The trade-off: many contracts, licenses, and permits require third-party consent to assign, adding closing complexity that stock purchases avoid.
Companion article: Selling Your Business in Texas