Business escrow · Bulk sales

California bulk sale escrow

Name: Alliance Mutual Escrow
Address: 12681 Newport Ave., Suite B, Tustin, CA, 92780, US
Telephone: +1-714-544-6525

A woman counts the stock on a bakery’s shelves.

In California, a business makes a bulk sale when it sells more than 50% of its stock and equipment in one deal, outside its normal trade. For stores, manufacturers and restaurants, the law calls for public notice to the seller’s creditors at least 12 business days ahead of the sale. Creditors can then file claims. In a cash sale of up to $2 million, the claims that come in on time are paid through escrow before any money goes to the seller.

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How the law defines a bulk sale

The Commercial Code draws the line at half. When a seller parts with more than 50% of its inventory and equipment through a deal outside its normal trade, that’s a bulk sale. Value is what counts, as of the day the sale agreement becomes enforceable (Commercial Code §6102).

The law looks out for the people the seller owes, like suppliers who sold on credit, the landlord and a lender. It warns them that the sale is coming, and in many smaller sales it lets them be paid from it.

Words you’ll hear

Here are the legal terms you’ll see, explained simply.

Word	What it means
Bulk sale	Selling over 50% of a business’s stock and equipment in one deal, not through normal sales to customers.
Notice of bulk sale	The public notice the law calls for, filed with the county recorder, run in a newspaper and given to the county tax collector.
Claim	A creditor’s written demand for payment from the sale, sent to the person the notice names.
Claims deadline	The business day before the sale date printed in the notice.
Business day	Any day except a Saturday, a Sunday or a state holiday.
Disputed claim	A claim the seller says is wrong, or too high. Escrow sets money aside for it.
Interpleader	A court case in which escrow deposits the money and a judge decides who gets it.
The tax agencies	The California Department of Tax and Fee Administration (CDTFA) for sales tax, the Employment Development Department (EDD) for payroll tax, and the Franchise Tax Board (FTB) for income tax withholding.

Which sales must follow the bulk sale law?

Start with what the seller mostly does. The law covers businesses that sell goods from stock, including ones that make what they sell, and restaurants. Then look at where the seller is. On the day the sale agreement becomes enforceable, the seller has to be located in California. That means its business address, or its headquarters if it has several locations (Commercial Code §6103).

Some sales are exempt. Size is one test: the law skips a sale when the assets are worth under $10,000 after liens, or over $5,000,000, and it presumes they’re worth the price the buyer agreed to pay. Sales by a bankruptcy trustee, a receiver or the executor of an estate are exempt too. So are transfers that only secure a loan, and some sales in which the buyer assumes all of the seller’s debts and announces it publicly.

Some things don’t count toward those dollar limits: the seller’s interest in its lease, built-in fixtures, and property the law shields from creditors. Removable office and factory machines do count (§6102).

Salons, gyms, agencies and other service businesses are usually outside the law, since they don’t mainly sell goods from stock. Selling one can still involve the state tax agencies, covered further down.

A liquor license in the sale?The Department of Alcoholic Beverage Control (ABC) runs its own transfer process, with a separate notice and escrow. Liquor license transfer escrow.

Who holds the money during a bulk sale?

Once the notice names an escrow to receive claims, the buyer must deposit the entire price there (§6106.4).

HeldThe whole purchase price, from the buyer, before the sale date
CheckedClaims filed by the deadline, and each tax agency’s answer
ReleasedCreditors paid by legal priority. The rest to the seller.

The steps of a bulk sale escrow

Every deadline counts back from the sale date in your agreement.

Step 1: The seller lists its business names
The seller gives the buyer a written list of the names it has done business under, and its addresses, going back three years (§6104). All of them appear on the notice.
Step 2: The notice is written
Its contents are set by law. It announces the sale and lists the seller’s names and addresses, along with the buyer’s. It tells readers where the assets are and gives a general description. It states where and when the sale is expected to happen. When claims will be paid through the sale, it also names the person who receives claims and the final day to send one (§6105).
Step 3: The notice goes public
No later than 12 business days before the sale, three things must be done. The notice goes on record in the county where the assets are. A newspaper of general circulation in that area prints it one or more times. And the county tax collector gets a copy, by hand or by registered or certified mail. A seller based in a different county must record and publish there as well. A tax collector’s copy delivered between January 1 and May 7 includes a business property statement (§6105). We handle the recording and the newspaper for the buyer.
Step 4: Creditors send claims
When the price is $2,000,000 or less and paid in cash, now or in later payments, the law makes escrow use the cash price to pay the seller’s debts to each creditor whose claim arrives in time. “In time” means received before close of business on the last filing day, the business day before the sale date the notice gives (§6106.2).
HeldNo one is paid yet. The price sits in escrow.
Step 5: The tax agencies answer
Meanwhile the state’s tax agencies check the seller’s accounts. If one reports a balance, that amount stays in escrow until it’s paid, so the debt doesn’t follow the business to the buyer. Details are in the table below.
CheckedEvery claim and tax answer is in hand before payout.
Step 6: Payout
Escrow pays the claims that arrived in time. If the seller disputes one, escrow holds back 125% of the first $7,500 of it, plus any amount over $7,500. After the payout, that creditor gets written notice and has 25 days to have a court attach the money held for it. If it doesn’t, the seller receives that money. No more than 45 days after the buyer gains legal title to any of the goods, escrow pays the undisputed claims or files an interpleader case so a court can decide (§6106.2).
ReleasedThe seller is paid after the creditors.

What if the price can’t cover every claim?

Escrow then holds off paying anyone or passing title for 25 to 30 days. Within five business days of the planned closing, it sends each creditor a notice with the total, every claim and what each will get. Then it pays in this order (§6106.4).

Order	Who is paid
1	Debts owed to the United States, where federal law gives them first place
2	Secured claims, including liens, up to the value of the property that secures them
3	Escrow charges, professional fees and brokers’ fees that arise directly from the sale
4	Employees’ wage claims that state law puts ahead of other debts
5	Any other tax claims
6	All other claims, split by the size of each one

A secured creditor shares in the payout only after it deposits a release of its lien that takes effect when it’s paid. Payments the buyer still owes after closing work the same way: they go to the unpaid creditors first, and the seller gets them only once every claim is paid.

Which tax clearances protect the buyer?

Skip one of these and the buyer can end up paying the seller’s old taxes. The time limits below come from the law. Real answers can take longer, since an agency may first want the seller’s returns.

Agency	The risk to the buyer	The agency’s deadline	What releases the buyer
CDTFA (sales and use tax)	If too little of the price is withheld, the buyer can be held personally responsible for sales and use tax the seller never paid, up to what the buyer paid (Revenue and Taxation Code §6812).	60 days, counted from the last of three events: the written request, the sale, and the opening of the seller’s records for audit. The CDTFA itself says to expect 60 days or longer.	A Certificate of Payment (CDTFA Publication 74)
EDD (payroll taxes)	Applies when the seller had workers. Until the EDD signs off, part of the price stays in escrow for any payroll taxes owed. A buyer who pays out anyway can owe those taxes personally, up to the price (Unemployment Insurance Code §1733).	Thirty days from a request by the buyer or the seller (§1732). In practice the EDD wants the seller’s returns filed and current before it releases the buyer (EDD guide DE 3409A).	The EDD’s Certificate of Release of Buyer, form DE 2220
FTB (income tax withholding)	This one is narrow. It matters only if the seller was required to withhold state income tax from payments to others. Then some of the price is held in trust until the FTB says no withholding is owed, and a buyer who skips this can owe it, capped at the value of the assets bought (§18669).	Sixty days after the buyer asks in writing.	A buyer’s withholding clearance certificate, sent by the FTB to the escrow company (FTB)

A deadline the agency misses works for the buyer, who is treated as cleared. It doesn’t erase the seller’s own tax debts. The seller still has to close its seller’s permit and file its final returns.

What if a buyer ignores the bulk sale law?

The sale isn’t undone, and the buyer keeps the business. The risk is money. Each creditor who lost out can sue the buyer for its claim, minus anything it wouldn’t have collected even if the law had been followed. In one sale, the buyer’s total exposure is generally limited to twice the net price, less what already went to the seller or to creditors (§6107).

Two rules limit the damage. If the buyer tried in good faith, and in a commercially reasonable way, to comply, it owes nothing under this rule. And a buyer who has to pay a creditor can get that money back from the seller.

Creditors must sue within a year of the sale. When a buyer hides the sale, that year runs from when the creditor finds out, or should have, with an outer limit of two years from the sale (§6110).

What to gather before escrow opens

Gather what you can before the first call. Your escrow officer will fill in the gaps.

Buyer

A signed copy of the deal: the purchase agreement or the bill of sale
The name you’re buying under, spelled the way the notice should show it, with your business address
Your plan to pay: all cash, a loan, or a note to the seller

Seller

Your business names from the last three years, with the address used for each
An inventory and equipment list, with the location of each item
Your seller’s permit number from the CDTFA, and your EDD account number if you’ve had staff
Your current lease and the landlord’s phone and email, when the buyer is taking over the lease

Bulk sale questions

What counts as a bulk sale in California?

It’s a deal where a business sells more than 50 percent of its inventory and equipment in one go, apart from its everyday sales. The law reaches businesses whose main work is selling goods from stock, including stores, wholesalers, manufacturers and restaurants. Sales where the assets are under $10,000 or over $5 million fall outside it. The notice must go out 12 or more business days before the sale. The county recorder records it, a newspaper prints it and the county tax collector gets a copy, so the seller’s creditors know where to file claims (Commercial Code §6102, §6103 and §6105). How a bulk sale escrow works.

How long does a bulk sale escrow take in California?

Usually longer than the 12 business days the notice requires. Twelve business days is only the shortest notice the law allows, not a closing date (Commercial Code §6105). The tax clearances tend to set the real pace, and the CDTFA warns that one can take 60 days or longer (CDTFA).

Does selling a salon or another service business need a bulk sale notice?

Usually not. The law is aimed at businesses that sell goods off the shelf, which includes restaurants and manufacturers (Commercial Code §6103). Salons, gyms and agencies mostly sell services, so they rarely qualify. The tax agencies can still be part of the sale: the EDD if there were employees, the CDTFA if taxable goods were sold, and the FTB if withholding tax was owed (FTB).

Do we have to publish the notice in a newspaper?

Yes, if the sale is covered. Publication is one of three required steps, along with recording and a copy to the tax collector. The paper must be one of general circulation in the area where the assets sit, and the notice appears there at least once, with 12 business days or more to spare before the sale. A seller based elsewhere publishes in its own area too (Commercial Code §6105).

Does the seller’s lease count toward the bulk sale?

No. When the law adds up what’s being sold, the seller’s rights under its lease are left out, and a lease is neither inventory nor equipment (Commercial Code §6102). The buyer works out the lease with the landlord in a separate agreement.

Sources and fine print

Sources checked September 2026. Page updated September 28, 2026. General information, not legal or tax advice.