BUSINESS OPPORTUNITY SALES

The sale of a business opportunity is also called a “Bulk Sale” in the California escrow industry and it characterizes the sale of an ongoing business. It is a specialized type of transaction and is governed under special government codes in California - the Uniform Commercial Code and/or the Business and Professions Code. Differences in the handling of the real property sale versus the personal property Bulk Sale is two-fold - there is no title insurance policy that is purchased for the benefit of the Buyer, and a Grant Deed is not the document conveying ownership.

It is important to note that in many cases the sale of the business can be separated from the sale of the real property on which it is located. Sometimes it is a package deal and depending on the parties involved, it can be handled as one transaction or separated into two - one for the sale of the real property and one for the sale of the business located on it.

Here are some salient points to the handling of a business opportunity transfer:

- A Bulk Sale transaction calls for a Uniform Commercial Code search with the Secretary of State and a search at the County Recorder’s office for liens filed in those agencies.

- It calls for a publication in newspapers in the judicial district of the business, giving their creditors/vendors notification and sufficient time to submit their claims for payment.

- It calls for the Escrow Holder to contact and receive a Certificate of Release from government agencies of Seller’s employment tax liabilities.

- The sale can include the tangible assets (inventory, fixtures and equipment, client lists) as well as intangible assets (goodwill) and a breakdown is normally required.

- As the businesses may occupy a location that is rented or leased, it calls for the Buyer to first seek Landlord approval as the new tenant.

- The transfer of business ownership is evidenced by the delivery of a Bill of Sale.

The types of businesses that are sold can be as varied as whatever stores you see down a street of commercial businesses. They run the gamut of doughnut shops, coffee shops, nail or hair salons, liquor stores, restaurants, hotels/motels, auto repair shops, gas stations, and auto dealerships, to name a few. Every business that exists can be sold and purchased. There are regulatory and processing differences so these transactions should go through a third-neutral party (Escrow Holder) who is sufficiently experienced to handle the transaction of its type.

Restaurants
Whether a small mom-and-pop shop or a large restaurant with many seatings the importance of going through an escrow is in the publication of the Notice to Creditors, which by statute gives the Seller’s creditors/vendors the opportunity to submit their claims for payment and thus relieve the Buyer of any demands from these creditors after they assume the business.

If the restaurant has a liquor license then the transaction must go through an Escrow Holder and specific instructions followed. The transaction cannot close until the Buyer is approved for the transfer of the liquor license through California’s Department of Alcohol and Beverage Control (ABC).

Hotels
As mentioned previously, the sale of the business can be separated from the real property on which the business stands and this is very evident in the sale of hotels. There may be a few components to this sale, the sale of the real property - in which case the laws governing the sale of real property apply; the sale of the actual hotel business - in which case the Bulk Sale laws apply.

Another component is the disposition of any other businesses that operate within the hotel, for instance, restaurants and other shops. If they are separate and owned or operated by others, then they are considered tenants and proration of leases and security will be involved.

If these other businesses are under the same management and their sale are included in the total sales price then there is a possible further breakdown of the individual cost for each separate business.

If any of these businesses include a liquor license, there is an additional concern for the transfer of this license (see Liquor License transfers).

Car Dealerships
The sale of car dealerships is normally a complicated transaction for the Buyer and Seller and requires an extended period of due diligence wherein the Buyer will examine all of the Seller’s books, records, financials and importantly, obtaining approval of the sale by the national auto brand corporation.

Gas Stations
Gas station sales may have two components, the gas station itself and a separate auto repair section, which may be under separate ownership. For the gas station, brand sale approval must be obtained from the company for which gas brand is contracted to be sold. If the auto repair component is not included in the sale then that business could be treated as a tenant of the owner of the gas station, depending on the contractual agreements between them.

Another consideration for gas stations purchasers is whether there is any ground contamination from underground facilities which will then require a Phase I, Phase II or even a Phase III survey done and/or remediation.

Convenience/Liquor and Other Stores
Businesses which sell goods for retail purposes requires a Seller’s permit issued by the California Department of Tax and Fee Administration (CDTFA). A certain percentage of sales tax is charged to non-perishable goods depending on the location of the store. It is important that the Escrow Holder hold all the funds due the Seller at closing until that Certificate of Release is received from CDTFA, which releases the Buyer of the Seller’s sales tax obligations.

A count of inventory remaining may be a part of the contract if the cost of inventory is separate from the sale price for the business.
In the case of liquor stores, Buyer must obtain approval of the liquor license transfer from California’s Department of Alcohol and Beverage Control (ABC) before the sale can be consummated.

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