Did you know that if you purchase a business without an escrow, you are subject to successors' liability and are responsible for all of the Seller's unpaid debts? When a Buyer purchases a business through escrow, the business transfers to the Buyer free and clear of any liens, and the Buyer is NOT responsible for any debts or liens of the Sellers.
There are only a small number of escrow companies that have the experience and knowledge to handle the transfer of a business. At Sepulveda Escrow, we are experts with decades of experience in Bulk Sales (Business Escrows), successfully helping our clients avoid successors' liability and potential issues in selling a business.
The sale of a business is known as a Bulk Sale or Business Opportunity transfer, which customarily consists of the sale of a business and its equipment, often including furnishings, fixtures, inventory, leasehold interest, goodwill, licenses, and the name of the business. While this type of transaction by law does not require an escrow, it is essential to have an escrow holder protect your interests, so you will have the confidence to complete the sale.
Your escrow holder shall draw the Agreement and documentation required and then holds all documents and funds until the Seller and Buyer have completed every condition. While the escrow process is different from a real estate sale, the concept is the same.
While the sale of a business is considered personal property, the role of an escrow holder continues to be the same as in the sale of real estate, with the exception that the process of making the transfer is governed by a different set of laws, known as the Commercial Code of the State of California. These laws protect many parties, including Lien Holders and Creditors and the State and Federal Agencies.
In addition to the recording and publication of a Notice to Creditors, your escrow holder will perform Searches on the Sellers and the business, which helps to determine what is required to transfer the business to the Buyer and avoid successors' liability so that the Buyer shall not be obligated to pay Sellers debts, an essential element of the Bulk Sale process. Sellers deposit into escrow of Releases from the California Department of Tax and Fee Administration (CDTFA) (formerly the State Board of Equalization), the Department of Employment Development, and the Franchise Tax Board are also required to close escrow. Ultimately the escrow process protects both Seller and Buyer and is advantageous to both parties.
