Business escrow · Orange County
Escrow for buying or selling a business
A business sale escrow holds the buyer’s money until the steps that protect both sides are done: the bulk sale notice when the law requires one, the state’s tax clearances, and any liquor license transfer. Then escrow pays the taxes and creditors in the legal order, and pays the seller.
Which business escrow is yours?
Most business sales use one of these. Some use two.
Who uses a business escrow?
Buyers and sellers of businesses, from cafés and bars to salons and service companies, and the brokers, attorneys and CPAs who help them close.
A business escrow works differently from a home escrow. California adds steps that protect the seller’s creditors and the state’s tax agencies, and those steps set the pace of the sale.
Where is the money in a business sale?
In escrow, until the steps that protect the creditors and the state are done.
- HeldThe buyer’s money, from the day it goes into escrow
- CheckedThe notices, the creditors’ claims and the tax clearances
- ReleasedTaxes and claims paid in the legal order, then the seller
The business escrow in five stages
Your agreement sets the dates. The law sets the order.
Step 1: The agreement
The buyer and the seller sign the purchase agreement and open escrow. The price, what’s included (inventory, equipment, the lease, the name) and the conditions go into escrow instructions that both of them sign.
Step 2: The notices
If the bulk sale law applies, its notice is recorded, published and delivered at least 12 business days before the sale (Commercial Code §6105). If a liquor license is part of the sale, the ABC’s Notice of Intended Transfer is recorded before the transfer application is filed (§24073).
Step 3: Claims
The seller’s creditors file claims with escrow by the deadline in the notice.
HeldThe buyer’s money waits in escrow while claims come in.
Step 4: Tax clearances
CDTFA for sales and use tax, EDD if the seller had employees, and the Franchise Tax Board if the seller had to withhold income tax. Each can leave the buyer owing the seller’s taxes if it’s skipped.
CheckedClaims and tax clearances are checked before anything goes out.
Step 5: Closing
Taxes and claims are paid in the order the law sets, then the seller gets the rest, and the buyer takes over.
ReleasedCreditors and taxes first, then the seller.
Which rules apply to my sale?
A rough guide. Your attorney decides which rules apply to your sale.
| Kind of business | Bulk sale notice | Liquor license rules | Tax clearances |
|---|---|---|---|
| A store, café or restaurant | Usually, when more than half of its inventory and equipment is sold (§6103) | Only if the sale includes a license | CDTFA; EDD if it had employees; FTB if it withheld tax |
| A service business, like a salon or an agency | Usually not: its main business isn’t selling inventory | Rarely | EDD if it had employees; CDTFA if it sold taxable goods; FTB if it withheld tax |
| A bar or restaurant with a liquor license | Can apply to the rest of the sale. Ask your attorney how it fits with the license notice. | Yes: the ABC notice, the escrow and the ABC’s approval (§24074) | CDTFA, EDD and FTB as above, and the ABC can refuse the transfer over the license’s unpaid taxes (§24049) |
What should we have ready?
Bring what you have. Your escrow officer will tell you what else your sale needs.
Buyer
- The signed purchase agreement, with the price and what’s included
- Your legal name and business address, as they’ll appear on the notices
- How the price will be paid: cash, a loan, or payments to the seller later
- If it’s a franchise, the franchisor’s approval and any transfer requirements
Seller
- Every business name and address you used in the last three years
- A list of the inventory and equipment being sold
- Your CDTFA seller’s permit and EDD employer account numbers, if you have them
- Your lease, and your landlord’s contact details
- Your liquor license number, if one is part of the sale
FAQ: Questions about business escrow
If yours isn’t here, call and ask: (714) 962-0999.
Do I need an escrow to buy a business in California?
Not always. California’s bulk sale law doesn’t require an escrow. In a sale of $2 million or less paid all or nearly all in cash, at closing or in payments later, it makes the buyer pay the seller’s creditors who file claims on time, and when the sale goes through escrow, the escrow agent does that instead (Commercial Code §6106.2). A sale that includes a retail liquor license for a price does need an escrow (Business and Professions Code §24074).
If I buy a business in California, can I owe the seller’s back taxes?
Yes, if the tax clearances are skipped. A buyer who doesn’t hold back part of the price or get a clearance certificate can owe the seller’s unpaid sales tax, collected by the California Department of Tax and Fee Administration (CDTFA), and payroll tax, collected by the Employment Development Department (EDD), up to the purchase price. If the seller had to withhold California income tax, the Franchise Tax Board (FTB) has its own clearance, and a buyer who skips it can owe that withholding, up to the value of what they bought. In an escrow, the clearances are requested before money goes to the seller (Revenue and Taxation Code §6812 and §18669; Unemployment Insurance Code §1733).
What does a business escrow hold that a home escrow doesn’t?
It holds the buyer’s money while the steps that protect the seller’s creditors and the state are done: the bulk sale notice and creditor claims when that law applies, the tax clearances from the CDTFA, the EDD and the Franchise Tax Board, and the ABC’s approval if a liquor license is part of the sale. Then the escrow pays the taxes and claims in the order the law sets, and pays the seller.
Can part of the price be paid later?
Yes, if the buyer and the seller agree. The bulk sale law’s claims rule still covers a sale of $2,000,000 or less paid all or nearly all in cash, at closing or in payments later (Commercial Code §6106.2). If a liquor license is part of the sale, the escrow can’t release the money it holds in exchange for a promissory note (Business and Professions Code §24074.2).
What if a tax agency doesn’t answer in time?
The law protects the buyer. If the EDD doesn’t answer a clearance request within 30 days, or the Franchise Tax Board within 60 days, that counts as a clearance for the buyer (Unemployment Insurance Code §1732; Revenue and Taxation Code §18669). If the CDTFA doesn’t send its notice within 60 days of the latest of the request, the sale, or the day the seller’s records are open for audit, the buyer no longer has to hold back part of the price (Revenue and Taxation Code §6812). The seller still owes its own taxes.
Sources and fine print
- Cal. Commercial Code §6103 (when the bulk sale law applies)
- Cal. Commercial Code §6105 (the notice)
- Cal. Commercial Code §6106.2 (paying claims)
- Cal. Business and Professions Code §24073 (liquor license notice)
- Cal. Business and Professions Code §24074 (liquor license escrow)
- Cal. Business and Professions Code §24074.2 (no release for a note)
- Cal. Business and Professions Code §24049 (unpaid taxes)
- Cal. Unemployment Insurance Code §1732 (EDD’s 30 days)
- Cal. Revenue and Taxation Code §6812 (CDTFA’s 60 days)
- Cal. Revenue and Taxation Code §18669 (FTB’s 60 days)
- CDTFA Publication 74: notifying CDTFA
- EDD DE 3409A: successor liability
- FTB: buyer’s withholding clearance certificate
Checked September 2026 against California law and the state agencies’ own pages. Page updated . This is general information, not legal or tax advice. Every deal is different, so talk to your attorney or CPA about yours.