Question: Cynthia, my friend asked me to list their hair salon, what should I know before I start, since I have never sold a business before? What is a Bulk Sale?
Answer: It would be overly optimistic to try and give you “Business Opportunity 101” in this particular format, but I will try and outline a few points for a Bulk Sale Transaction that you should know.
Business Opportunity Escrows, also known as Bulk Sales, are very different than real estate transactions. First, you need to define what type of escrow you are dealing with. Here are a couple of common variations:
1) Operating Business Assets, in a leased location, without an ABC Liquor License.
2) Operating Business Assets, in a leased location, with an ABC Liquor License
All business opportunity transactions have a few things in common. For the business assets, there is NO TITLE INSURANCE. The ownership of the business should be reflected in the lease, business licenses and permits, and a Fictitious Business Name Filing (also known as “DBA”).
According to California State Law, when buying a business, a buyer can be subject to possible successor liability for the seller’s debts. Successor liability can be avoided, by taking the following steps in a Bulk Sale Escrow:
- Filing of a Notice to Creditors (public notice that the business is being sold, giving creditors of the seller, an opportunity to be paid.
- Notification of Taxing Agencies, and Request for a Buyer’s Release, including Franchise Tax Board (State Income Tax) State Board of Equalization (Sales Tax), Employment Development Department (Employment Tax) and the County Tax Collector (Property Taxes on business assets).
- Search for possible fixture filings, or financed equipment, (known as a UCC Search) on the State level, and for liens and judgments on the County level.
When a business involves a Liquor License (whether just beer and wine or full liquor) In addition to the items above, there is a process with the Department of Alcoholic Beverage Control. This process requires the seller to “sign off” giving permission for the transfer, and a detailed application process by the buyer. The rest of the process is similar to what is described above, except the form that is filed in the newspaper is called a “Notice of Intended Transfer”.
As a general rule, transfers with a Liquor License take about 45 days minimum, due to the “posting” period of 30 days, required by the Department, and the complexity of the application process.
Bulk Sale transactions without a Liquor License take about 3 weeks minimum, due to the time frames required by the filing of the Notice to Creditors. This Notice is filed once in a newspaper local to (and specified by the courts) the business location. After the notice appears, there is a 12 BUSINESS day waiting period, before escrow can close.
During the escrow process, the buyer will need to apply for their own licenses and permits (most are NOT transferrable), apply for a new lease, or assignment of an existing lease, arrange for financing, obtain insurance. If applicable, the buyer will also need to apply for accounts with vendors that supply the business, and arrange their bank accounts. If the business is part of a Franchise, there will be an application and approval process for the buyer to go through as well.
This is just a little overview of the process. If you have one cross your desk, give me a call, and I would be happy to try and answer your questions.