Mergers & Acquisitions

New York private equity sponsors, family offices, and institutional investors increasingly target middle-market operating corporations in Texas. Texas offers robust economic fundamentals, favorable corporate growth conditions, and strong industrial, technology, and service sectors.

However, executing an acquisition of a privately held Texas corporation involves distinct statutory frameworks, judicial doctrines, and transaction norms that differ markedly from New York practice.

Key Substantive Legal & Statutory Differences

New York buyers accustomed to the New York Business Corporation Law (BCL) or the Delaware General Corporation Law (DGCL) must account for the specific provisions of the Texas Business Organizations Code (TBOC) and Texas common law.

Corporate Governance: TBOC vs. New York BCL

• Fiduciary Duties and Shareholder Oppression: Texas does not recognize a standalone common-law cause of action for “shareholder oppression” in closely held corporations (Ritchie v. Rupe). Redress for minority shareholders must generally flow through derivative claims for breach of formal fiduciary duty or direct breach of contract under a shareholder agreement.
• Statutory Approval Thresholds: Under the TBOC, fundamental business transactions—including mergers, conversions, or sales of substantially all assets—require approval by a two-thirds majority of voting shares by default, unless the certificate of formation expressly lowers the threshold (down to a simple majority). New York BCL § 903 generally requires a simple majority for corporations formed after February 1998, but two-thirds for older entities.
• Informal Action and Consents: The TBOC allows for written shareholder consent without a meeting by less than unanimous consent if expressly authorized in the certificate of formation. Reviewing the target’s constitutional documents early is essential to confirm voting mechanics.

Contractual Enforceability & M&A Deal Terms

• Express Non-Reliance Clauses and Fraud Carve-Outs: Texas courts strictly enforce disclaimers of reliance to bar post-closing fraudulent inducement claims, provided the clause satisfies specific Texas standards of clarity and intent (Italian Cowboy Partners v. Prudential; Schlumberger Technology Corp. v. Swanson). New York buyers must ensure that merger agreement non-reliance and integration provisions are drafted with explicit, unambiguous release language to withstand Texas judicial review.
• Governing Law and Forum Selection: While New York investors often prefer New York choice-of-law and forum clauses, Texas courts apply a restatement-based conflicts analysis. Where a Texas target has all operations, employees, and physical assets in Texas, courts may scrutinize attempts to apply New York law to purely local employment, non-compete, or real property matters.

Restrictive Covenants & Non-Competes

• Statutory Framework: In New York, non-compete agreements are governed primarily by common-law reasonableness standards. In Texas, post-closing non-compete and non-solicitation covenants must strictly comply with the Texas Covenants Not to Compete Act (Tex. Bus. & Com. Code § 15.50).
• M&A Enforceability Standard: Texas courts treat restrictive covenants entered into in connection with the sale of a business under a more permissive standard than ordinary employment covenants. However, the covenant must still be ancillary to an otherwise enforceable agreement (such as the purchase agreement or goodwill transfer) and contain reasonable geographic and temporal limits.

Dispute Resolution & Business Courts

• The Texas Business Court System: Texas has instituted specialized Business Courts alongside a dedicated Fifteenth Court of Appeals to hear high-value commercial and governance disputes (actions involving transactions over statutory monetary thresholds and internal governance disputes).
• Litigation Environment: While New York’s Commercial Division has established decades of corporate case law, the Texas Business Court system provides an efficient, business-fluent forum designed to handle complex corporate litigation without general-jurisdiction jury delays.

Tax Structuring

Acquisitions of Texas corporations require careful modeling of state and local tax (SALT) impacts alongside federal tax planning.

• Absence of State Personal Income Tax: Texas does not impose a personal income tax. This significantly affects equity rollover structures and incentive equity grants for Texas-based founders and executive teams compared to New York-based management.
• Texas Franchise Tax (Margin Tax): Texas imposes a gross receipts-based “Margin Tax” on entities doing business in the state, calculated on apportioned margin rather than traditional net corporate income. Asset purchases and restructuring events can alter margin tax calculations and apportionment factors.
• Sales and Use Tax on Asset Sales: Asset acquisitions must account for Texas sales tax exemptions, specifically the statutory “occasional sale” exemption, to avoid unintended transfer tax exposure on equipment, inventory, and operational assets.

Substantive Commercial & Market Considerations

Beyond statutory distinctions, successful transaction execution depends on understanding substantive commercial dynamics prevalent in the Texas middle market.

• Privately Held & Founder-Owned Dynamics: A large portion of Texas middle-market targets are first- or second-generation founder- or family-owned businesses. Unlike institutional carve-outs common in New York financial circles, these transactions require distinct approaches to reps and warranties, disclosure schedules, transition services, and seller indemnity escrows.
• Operational Footprint vs. Financial Assets: Texas targets frequently own significant tangible real estate, industrial infrastructure, logistics networks, or field assets. Due diligence must prioritize environmental assessments (Phase I/II ESAs), local municipal permitting, title and survey reviews, and local regulatory compliance.
• Key Executive Retention & Incentives: Because Texas professionals do not face state personal income tax, standard deferred compensation or equity incentive models must be structured to preserve tax efficiency while establishing meaningful retention alignment.
• Deal Execution Cadence: While New York buyers prioritize rapid term sheet execution and strict closing timelines, transactions with privately held Texas businesses often require more upfront due diligence collaboration, relationship-level alignment with key operators, and transparent post-close operational roadmaps.

M&A Deal Counsel

Structuring an acquisition of a Texas corporation requires deal counsel that understands both the expectations of institutional capital and the legal mechanics of Texas corporate law.

Doug McCullough

Partner | M&A, Corporate & Tax

Admitted: New York | Texas

Education: Southern Methodist University School of Law (LL.M., Taxation) | Texas Tech University School of Law (J.D.) | Indiana University (B.A.)