Complying with California’s bulk sales law
By Patrick Casey
Lombardo
&
amp; Gilles
There are many ways for an individual to start their own
business. Some start a business from scratch while others decide to
purchase an already existing business. In the latter case, a
purchaser must be careful not to assume any debts or liabilities of
the existing business that the purchaser does not expressly want to
assume. One of the most effective ways for the purchaser to protect
themselves is through complying with California’s bulk sales
law.
Complying with California’s bulk sales law
By Patrick Casey
Lombardo & Gilles
There are many ways for an individual to start their own business. Some start a business from scratch while others decide to purchase an already existing business. In the latter case, a purchaser must be careful not to assume any debts or liabilities of the existing business that the purchaser does not expressly want to assume. One of the most effective ways for the purchaser to protect themselves is through complying with California’s bulk sales law.
The purpose of California’s bulk sales law is to warn the seller’s creditors of the impending sale of all, or substantially all, of its assets by requiring that certain documents be published and recorded. There are three primary requirements that must be met for the bulk sales law to apply to a sale. First, the bulk sales law only applies if the seller is located in California. It really does not matter where the assets are located, but rather the location of the seller’s principal executive office is the key factor.
Second, the bulk sales law applies to either (i) any seller that is a restaurant owner or (ii) the seller’s principal business is the sale of inventory from stock, including those sellers that manufacture what they sell. Third, in addition, the bulk sales law only applies when the sale of the seller’s inventory or equipment is not in the ordinary course of the seller’s business and if the value of the inventory and equipment being sold is worth more than one-half of the seller’s total inventory or equipment.
There are a large variety of sales that are exempted from California’s bulk sales requirements, including any transaction in which the assets sold are worth more than $5,000,000 or less than $10,000; the creation of any security interest in the equipment or inventory; any assignment of equipment or inventory for the benefit of creditors; the settlement of a lien or a security interest; the sale of encumbered assets; any sale that occurs pursuant to a court order or by public officers; any sales that occur pursuant to a corporate dissolution or reorganization; any transfer of goods in a warehouse; any sale or leaseback transaction; any transfer of an alcoholic beverage license; and various other types of transfers.
If a seller meets the three requirements for a bulk sale transfer and there are no applicable exemptions, then the buyer must give notice of the bulk sale. Specifically, a buyer that is subject to the bulk sales law must do all of the following:
Record a notice in the County Recorder’s office in each county in California where the tangible assets are located at least 12 business days before the date of the bulk sale; publish a notice at least once in a newspaper of general circulation in the judicial district in which the tangible assets are located; and deliver or send the notice by registered or certified mail to the County tax collector in the county or counties in which the assets are located. The bulk sale transfer notice must state that a bulk sale is about to occur; the seller’s name and current address and its address for the past 3 years; the location and general description of the assets; the place and anticipated date of the bulk sale; and if the purchase price is $2,000,000 or less and is substantially all paid in cash at closing, then the name and address of the person to whom claims may be filed.
If a buyer takes all of these steps and follows the procedural time requirements, then a seller’s creditors will not be able to pursue the buyer to obtain payment of any of the seller’s debts or obligations. It is relatively easy to comply with California’s bulk sales transfer law and it is an extremely effective way to immunize the buyer from the seller’s debts and obligations. If you are considering purchasing an existing business, then you should contact a knowledgeable business attorney that can assist you in complying with California’s bulk sales law.
This column is the work product of Lombardo & Gilles, LLP, which has offices in Hollister and Salinas. Patrick Casey is an attorney with Lombardo & Gilles, LLP. You may contact the author at (888) 757-2444 or
pa*****@lo****.com
. Mail your questions to Patrick Casey, It’s the Law, c/o The Pinnacle, 350 Sixth St., Ste. 102 Hollister, CA 95023.
