Business escrow · California
Escrow for business sales in California
Escrow is where a business sale waits until California’s steps are done. The buyer’s money stays there while any required notices go out and the state’s tax agencies check what the seller owes. A liquor license also needs the state’s approval. At closing, taxes and claims are paid by legal rank. The seller gets what’s left.
What does escrow do in a business sale?
It stands in the middle. Both sides sign one set of written escrow instructions, and we carry them out. The money and the papers stay with us until closing. We don’t take sides or give legal or tax advice.
Selling a business takes more steps than selling a house. In many sales, California lets the seller’s creditors get paid from the sale money. It also lets the state collect the seller’s unpaid taxes before the seller is paid. The escrow’s calendar is built around those steps.
Words you’ll hear
A business sale comes with its own terms and its own state agencies. Here’s a short guide.
| Word | What it means |
|---|---|
| Bulk sale | A one-time deal, outside everyday selling, that moves over half of a company’s inventory and equipment to a buyer. California’s bulk sale law covers stores, makers of goods and restaurants. |
| Escrow holder | The neutral company in the middle. It keeps the money and documents and acts only on instructions both sides have signed. |
| Creditor | Anyone the seller owes money to, such as a supplier, a landlord or a lender. |
| Claim | A creditor’s written request to be paid from the sale. |
| Tax clearance | A state agency’s certificate that the seller owes it nothing, or its statement of how much to hold back from the price. |
| CDTFA | The California Department of Tax and Fee Administration, which collects sales and use tax. |
| EDD | The Employment Development Department, which collects payroll taxes. |
| FTB | The Franchise Tax Board, California’s income tax agency. |
| ABC | The Department of Alcoholic Beverage Control. It issues liquor licenses and must approve every transfer. |
Which escrow does your sale need?
Pick the one that matches your deal. Some deals need two.
Where is the money while the sale is pending?
In escrow, out of the seller’s reach, until every step is finished.
- HeldEvery dollar the buyer deposits, until closing
- CheckedCreditors’ claims, tax agency answers and any ABC approval
- ReleasedTaxes and claims get paid by legal rank. The seller is paid last.
How a business sale escrow runs
The dates come from your purchase agreement. State law sets the order.
Step 1: Escrow opens
Once the purchase agreement is signed, escrow opens. Both sides then sign escrow instructions covering the price, what’s included (the stock, the equipment, the name, the lease) and the conditions for closing.
Step 2: Notices go out
If the bulk sale law covers the deal, the seller’s creditors get public notice no fewer than 12 business days ahead of the sale: the county records it, a newspaper runs it and a copy goes to the county tax collector (Commercial Code §6105). A liquor license has a separate notice of its own, which must be on record with the county before anyone applies to the ABC (Business and Professions Code §24073).
Step 3: Claims come in
Creditors of the seller file their claims with escrow before the deadline.
HeldThe buyer’s money stays put while claims arrive.
Step 4: The tax agencies answer
Clearances come from up to three agencies: the CDTFA for sales tax, the EDD when there were employees, and the FTB when withholding tax is at issue. Whatever they say is owed comes out of the price before the seller is paid.
CheckedNothing goes out until the claims and the tax answers are in.
Step 5: Closing
Escrow pays the state and the creditors what they’re owed, following the law’s ranking, and sends the balance to the seller. The business is now the buyer’s to run.
ReleasedThe seller’s share comes last.
Which steps fit my kind of business?
A rough guide only. Your attorney makes the call for your deal.
| Type of business | Bulk sale notice | ABC steps | Tax agencies |
|---|---|---|---|
| Store, bakery or restaurant | Yes in most cases, if over half of the stock and equipment changes hands (§6103) | Only with a license in the deal | CDTFA, plus EDD for a business with staff and FTB for one that withheld tax |
| Maker or wholesaler | Yes in most cases, since it sells goods from stock | Only with a license in the deal | Same as a store |
| Salon, gym, office or other service business | Usually not, since selling goods from stock isn’t its main business | Only with a license in the deal | EDD for a business with staff, CDTFA when taxable goods were sold, FTB when the seller withheld tax |
| Bar, or restaurant serving alcohol | Possibly, for the stock and equipment. Your attorney can explain how that notice and the ABC’s fit together. | Yes: an ABC notice, an escrow for the full price, and ABC approval (§24074) | Same as a store. The ABC can also refuse the transfer over unpaid taxes tied to the license (§24049) |
What should each side bring to escrow?
Bring what’s handy. We’ll ask for the rest as the escrow moves along.
Buyer
- Your copy of the signed purchase agreement
- The exact legal name and address you’re buying under
- How you’ll pay for it, such as your own money, a loan or installments to the seller
- For a franchise, the franchisor’s approval, if the franchise agreement calls for it
Seller
- Past business names and addresses, going back three years
- Your stock and equipment list, showing where everything is
- Your CDTFA and EDD account numbers
- Your lease, and how to reach your landlord
- Your ABC license number, if the license is being sold
Business sale questions
Does buying a business in California require an escrow?
Not always. The bulk sale law doesn’t require one. When the sale price is no more than $2 million and is paid all or substantially all in cash (now or later), the buyer has to pay any creditor of the seller who files a claim in time. When the sale runs through escrow, that job passes to the escrow agent (Commercial Code §6106.2). If a retail liquor license changes hands in the deal for a price, an escrow is required (Business and Professions Code §24074).
If I buy a business, can I end up owing the seller’s taxes?
It can happen when nobody gets the tax clearances. A buyer who gets no clearance and withholds nothing from the price can be stuck with the seller’s unpaid sales tax, owed to the California Department of Tax and Fee Administration (CDTFA). The same goes for payroll tax owed to the Employment Development Department (EDD), but only up to the price paid. For California income tax the seller had to withhold, the Franchise Tax Board (FTB) issues a separate clearance. In an escrow sale, the clearance requests go in before any money reaches the seller (Unemployment Insurance Code §1733; Revenue and Taxation Code §6812 and §18669).
Can the buyer pay the seller over time?
Yes, when both sides agree. A price paid partly later can still fall under the bulk sale claims rule, which reaches cash sales priced at $2,000,000 or less, whether the cash comes at closing, later or both (Commercial Code §6106.2). If the escrow’s cash can’t pay every claim, each later payment goes to the creditors until they’re paid in full, and only then to the seller (§6106.4). A deal that includes a liquor license has one more rule: escrow may not give up the cash it holds and take a note in its place (Business and Professions Code §24074.2).
What happens if a tax agency misses its deadline?
Silence works in the buyer’s favor. The EDD gets 30 days to respond to a clearance request and the FTB gets 60. If either lets its deadline pass without a certificate or a statement of what’s owed, the law gives the buyer the same release a certificate would (Unemployment Insurance Code §1732 and Revenue and Taxation Code §18669). The CDTFA’s 60 days start on the latest of three dates: when it gets the buyer’s written request, when the sale happens, and when the seller’s books are ready to be audited. If it mails no notice by then, the buyer’s duty to withhold ends (§6812). The seller’s own tax debts don’t go away.
Do you work with business brokers?
Yes. The California Association of Business Brokers (CABB) lists us as an affiliate, and we handle escrows for brokers and their clients all over California. Once the purchase agreement is signed, send it to us and we’ll open escrow.
Sources and fine print
- Cal. Commercial Code §6103: sales the bulk sale law reaches
- Cal. Commercial Code §6105: notice 12 business days ahead
- Cal. Commercial Code §6106.2: escrow pays timely claims
- Cal. Commercial Code §6106.4: if the cash falls short
- Cal. Business and Professions Code §24073: recorded notice of a license transfer
- Cal. Business and Professions Code §24074: escrow for a license sale
- Cal. Business and Professions Code §24074.2: funds can’t be swapped for a note
- Cal. Business and Professions Code §24049: the ABC and unpaid taxes
- Cal. Revenue and Taxation Code §6812: CDTFA clearance and the buyer
- Cal. Revenue and Taxation Code §18669: FTB withholding clearance
- Cal. Unemployment Insurance Code §1732: EDD certificate within 30 days
- Cal. Unemployment Insurance Code §1733: a buyer who doesn’t withhold
- CDTFA Publication 74: notifying the CDTFA of a sale
Sources checked September 2026. Page updated . General information, not legal or tax advice.