Bulk Sale Escrow Services
Bulk sale escrows can be defined as an escrow agreement placed on the sale of inventory, business assets, or a company. The escrow is designed to protect the assets of both secured and unsecured creditors. It is designed to eliminate the possibility of the seller using the money from the sale on other things besides taxes owed to a variety of government agencies or for monies due to vendors or other outstanding debts, depending on the business type.
If a business is experiencing financial difficulty, it can lessen its issues by downsizing business and selling portions of inventory or business assets. An escrow agent will collect the funds from the seller to protect them from being used on unprofitable business deals. The escrow agent will then forward the funds to the appropriate parties. Generally, escrow fees will be charged for this service and the service costs are split between the buyer and the seller. However, the two parties can agree in writing as instruction to escrow on the terms and requirements of closing, including cost splits.
Any purchaser buying assets or a business is generally not liable for the seller’s obligations unless the buyer agrees to take on those obligations. There are a number of laws that determine if the successor is to become liable for the purchase of a business, the bulk sale law being one. If the buyer fails to ensure that the bulk sale transaction agrees with the law, the buyer will be responsible for the seller’s debts, and be subject to the seller’s creditors collection attempts, as well as government agency monies due. However, if a buyer gets locked in to paying for the seller’s debts when it was not part of the agreement, the buyer can be reimbursed. Therefore, in most cases, a buyer will want to ensure that a business purchase complies with the bulk sales law and using an Escrow Company is your best bet to ensure that everything is handled properly and all parties are safe from post-closing issues arising.
Bulk Sale Law
Bulk sale laws are put in place to prevent business owners from defrauding creditors by the act of transferring the business assets to another individual. These laws are also to prevent the opportunity for a business to sell below fair market value with the intent of maintaining some amount of control over the business. For more information on the bulk sale law refer to your local Uniform Commercial Code.
There is no escrow requirement for a bulk sale if the price is greater than $2,000,000. There is also no escrow requirement if the amount to be paid isin the form of a payment other than cash. This includes a promise to pay cash in the future.
If the price to be paid is less than $2,000,000 and the amount to be paid is in cash, or there is a promise for payment in the future, there is an escrow requirement. If escrow is required, then the buyer is required to put the full amount of the purchasing price into escrow. If a portion of the purchase price is promised to be paid in the future, then the promissory note must also be included during the escrow process.
In either instance, it is always considered best practice to use an Escrow Company to make sure the contractual requirements are met, all necessary debts, taxes and bills are paid with good funds and to ensure all the proper documentation is in place so that all parties are as protected as possible.
Professional Escrow Services
At Ultimate Escrow Services Inc we look forward to guiding you through the process and making your real estate transaction as easy as possible. As a full-service escrow company, our experienced escrow officers will handle all of your escrow needs and ensure a smooth and trouble-free closing.
Need to get an escrow started today?
If you need to open an escrow today or want general information on how our escrow professionals can help you close your escrow transactions in an efficient and secure manner, please provide your information below and a member of our team will contact you immediately!
Ultimate Escrow Services, Inc. DBO License #963-1901
Ultimate Escrow Services, Inc.
DBO License #963-1901