Bulk Sales Law, Bulk Sales Act

Buying a Business? Be Aware of the Bulk Sales Law

You just bought a business.

Congratulations!

But a moment that should be filled with excitement can quickly shift into overwhelming dread as phone calls from creditors begin filling your voicemail, eager to recoup the debts owed on the business by the previous owner.

Not your problem? Think again!

If you have failed to comply with the California’s Bulk Sales Law, any debt incurred by the business you just purchased may now be yours.

Fortunately, you can avoid this difficult predicament with some simple education.

So, what even qualifies as a Bulk Sale? We thought you may be wondering by now.

A “Bulk Sale” is defined as any sale outside the ordinary course of the seller’s business and of more than half the seller’s inventory and equipment as measured by the fair market value on the date of the Bulk Sale Agreement.

According to California’s Bulk Sales Act, the buyer of a “Bulk Sale” is required to post official notice at least 12 days prior to the sale/purchase for any potential creditor’s review. This notice must include:

  • A statement verifying that a bulk sale is taking place.
  • The location and description of any assets included in the sale
  • Where and when the sale took place
  • The name and addresses of both the seller and buyer
  • Is the “Bulk Sale” a “Small Cash Sale”? (This will place the entire sales price into escrow)

This process ensures that any creditors are paid debts owed directly from escrow, which is essentially the seller’s profits. It guarantees that the new business owner will not be liable for any of  the previous owner’s debts, and,  most importantly, that their initial excitement isn’t spoiled with a collector’s phone call.

So, buyers and beware: buying a business can be complicated, but with the right help the only thing you’ll need to focus on is how to make it successful.

Need more information? Contact Attorney Peter C. Wittlin at pwittlin@gmail.com or (949) 430-6529.