Business escrow · Bulk sales
Bulk sale escrow in Orange County
A bulk sale is the sale of more than half of a business’s inventory and equipment, outside its normal course of business. For stores, restaurants and businesses that make what they sell, California requires a public notice at least 12 business days before the sale, so creditors can file claims.
What is a bulk sale in California?
Under the California Commercial Code, a bulk sale is a sale, outside the seller’s ordinary course of business, of more than half of the seller’s inventory and equipment. The half is measured by value on the date of the sale agreement (Commercial Code §6102).
Some property isn’t counted as an asset of a bulk sale, so it’s left out of the sale’s value for the $10,000 and $5,000,000 limits below: fixtures (except office and factory machines that can be taken out easily), the seller’s lease, and property creditors can’t reach (§6102).
The law protects the seller’s creditors: suppliers, landlords, lenders. It gives them notice of the sale and, in most small sales, a way to be paid out of it.
Does the bulk sale law apply to my sale?
Two things have to be true (§6103). First, the seller’s main business is selling inventory from stock, or running a restaurant. Businesses that make what they sell count. Second, on the date of the sale agreement, the seller is located in California: its place of business, or its chief executive office if it has more than one.
Many sales are left out, including sales of assets worth less than $10,000 after liens or more than $5,000,000; sales by an executor, a receiver or a bankruptcy trustee; transfers made to secure a debt; and some sales where the buyer takes on the seller’s debts and publishes notice of it.
A service business, like a salon or a consulting firm, usually isn’t covered, because its main business isn’t selling inventory. The tax clearances below can still apply.
Selling a bar or a restaurant with a liquor license?The license has its own escrow and notice rules. How a liquor license transfer works.
Where is the money in a bulk sale escrow?
When claims go to an escrow, the buyer deposits the full price with it (§6106.4).
- HeldThe buyer’s full price, deposited before the sale
- CheckedCreditors’ claims, and what the tax agencies say is owed
- ReleasedClaims paid in the order the law sets, then the seller
How a bulk sale escrow works
The law sets the order. Your sale agreement sets the dates.
Step 1: The buyer gets the seller’s business names
The buyer asks the seller for a list of every business name and address the seller used in the last three years (§6104).
Step 2: The notice is written
It says a bulk sale is coming and names the seller (with the other names on the list) and the buyer. It says where the assets are, describes them, and gives the place and expected date of the sale. If the claims rule applies, it also says who takes claims and the last day to file one (§6105).
Step 3: The notice goes out at least 12 business days ahead
At least 12 business days before the sale, the notice is recorded with the county recorder where the assets are, published at least once in a newspaper of general circulation there, and delivered or sent by registered or certified mail to the county tax collector. If the seller is located in another county, the notice is also recorded and published there (§6105). Between January 1 and May 7, the tax collector’s copy includes a business property statement. Business days leave out weekends and state holidays.
Step 4: Claims come in
For a sale of $2,000,000 or less, paid all or nearly all in cash (now or in payments later), the escrow pays the seller’s debts to creditors who file on time. The deadline is the business day before the expected sale date in the notice (§6106.2).
HeldThe buyer’s full price waits in escrow while claims come in.
Step 5: Tax clearances
The state’s tax agencies say whether the seller owes anything the buyer could be stuck with. Escrow holds back what they say is owed. See the table below.
CheckedClaims and tax clearances are checked before anything goes out.
Step 6: Closing
Timely claims get paid. A claim the seller disputes is held back: 125% of the first $7,500, plus the full amount over that. Within 45 days after the buyer takes title to the goods, the undisputed claims are paid, or the escrow asks a court to decide who gets the money.
ReleasedCreditors are paid in the legal order, then the seller gets the rest.
Which tax clearances does a business sale need?
Each one protects the buyer from the seller’s unpaid taxes. The deadlines are what the law gives the agency, not a promise of when yours comes back. Agencies often need the seller’s filings first.
| Agency | What’s at stake for the buyer | The law’s deadline | What clears it |
|---|---|---|---|
| CDTFA (sales and use tax) | A buyer who doesn’t hold back enough of the price can become personally liable for the seller’s unpaid sales and use tax, up to the purchase price (R&TC §6812). | The agency has 60 days after the latest of your written request, the sale date, or the date the seller’s records are open for audit. CDTFA says a clearance can take 60 days or more. | A certificate from CDTFA that nothing is due |
| EDD (payroll taxes) | If the seller had employees, the buyer holds enough in escrow to cover unpaid payroll taxes, up to the purchase price (UIC §1733). | EDD has 30 days after a request (UIC §1732). EDD asks the seller to file its current returns first (DE 3409A). | Certificate of Release of Buyer (DE 2220) |
| FTB (withholding) | Only if the seller had to withhold California income tax: the buyer holds part of the price until the Franchise Tax Board certifies nothing is due (R&TC §18669). | 60 days after a written request. | A buyer’s withholding clearance certificate (FTB) |
If the EDD or the FTB doesn’t answer in time, the law treats that as a clearance for the buyer. If the CDTFA doesn’t send its notice in time, the buyer no longer has to hold back part of the price. The seller still owes its own taxes, closes out its seller’s permit and files final returns. This is general information, not tax advice. Talk to your CPA about your sale.
What if the buyer skips the bulk sale steps?
The sale still stands. But the buyer becomes liable to each affected creditor for its claim, less what that creditor wouldn’t have collected anyway. The total is generally capped at twice the net price, minus what was already paid to the seller or to creditors. A buyer who made a good-faith, reasonable effort to comply isn’t liable, and a buyer who pays can go after the seller (§6107).
Creditors have one year after the sale to sue. If the sale was hidden, the clock runs from when it was found, and never more than two years after the sale (§6110).
What should I have ready?
Bring what you have. Your escrow officer will tell you what else your sale needs.
Buyer
- The signed purchase agreement or bill of sale, with the price
- Your legal name and business address, exactly as they’ll appear on the notice
- How the price will be paid: cash, a loan, or payments later
Seller
- Every business name and address you used in the last three years
- A list of the inventory and equipment being sold, and where it is
- Your CDTFA seller’s permit number and your EDD employer account number, if you have them
- Your lease and your landlord’s contact details, if the lease goes with the sale
FAQ: Questions about bulk sales
If yours isn’t here, call and ask: (714) 962-0999.
How long does a bulk sale escrow take?
The notice must be recorded, published and delivered at least 12 business days before the sale. That’s the legal minimum, not a closing date. Tax clearances often take longer: CDTFA says a clearance can take 60 days or more.
Do I need a bulk sale notice to sell a salon or a consulting business?
Usually not. California’s bulk sale law covers sellers whose main business is selling inventory from stock or running a restaurant (Commercial Code §6103). A service business usually isn’t, but the CDTFA, EDD and FTB tax rules can still apply to the sale.
Is the newspaper notice really required?
Yes, in a covered sale. At least 12 business days before the sale, the notice has to be published at least once in a newspaper of general circulation where the assets are, recorded with the county recorder there, and delivered to the county tax collector. If the seller is located in another county, it’s also recorded and published there (Commercial Code §6105).
What if the price doesn’t cover every claim?
The escrow holds off paying anyone for 25 to 30 days, tells each claimant within five business days, and then pays in the order the law sets. Certain federal debts come first, then secured claims, then escrow and professional charges and brokers’ fees tied directly to the sale, then priority wage claims, then other taxes. Everyone else shares what’s left, pro rata (Commercial Code §6106.4).
Can the seller’s creditors come after the buyer later?
If the buyer skipped the bulk sale steps, yes: creditors can sue the buyer for up to one year after the sale, and the buyer’s liability is generally capped at twice the net price, minus what was already paid out. A buyer who made a good-faith effort to comply isn’t liable (Commercial Code §6107, §6110).
Does the lease count as part of the bulk sale?
No. The bulk sale law doesn’t count the seller’s lease as an asset of the sale (Commercial Code §6102), and a lease isn’t inventory or equipment. Moving the lease to the buyer is a separate step with the landlord.
Sources and fine print
- Cal. Commercial Code §6102 (definitions)
- Cal. Commercial Code §6103 (when it applies)
- Cal. Commercial Code §6104 (buyer’s duties)
- Cal. Commercial Code §6105 (the notice)
- Cal. Commercial Code §6106.2 (paying claims)
- Cal. Commercial Code §6106.4 (full price in escrow)
- Cal. Commercial Code §6107 (buyer’s liability)
- Cal. Commercial Code §6110 (deadline to sue)
- Cal. Revenue and Taxation Code §6812 (sales tax successor)
- CDTFA Publication 74: notifying CDTFA
- Cal. Unemployment Insurance Code §§1732, 1733
- EDD DE 3409A: successor liability
- Cal. Revenue and Taxation Code §18669 (withholding successor)
- 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.