Selling a California business: does the bulk-sale notice apply?

You have a signed deal and a closing date. Then someone asks whether a bulk-sale notice must be recorded and published before the buyer can take the assets. The broker wants to know whether the date still works. The buyer and seller want to know what the notice changes.

Start with coverage, not the form. California's bulk-sales law applies to a defined group of sellers and transactions. If the sale is covered, the notice period and creditor-claim process become part of the closing calendar. California matters are handled via co-counsel.

First decide whether this is a statutory bulk sale

The everyday phrase “sale of the business” is broader than the California statute. For a sale that is not an auction or liquidation, a bulk sale generally means a sale outside the seller's ordinary course of business of more than half of the seller's inventory and equipment, measured by value on the date the agreement becomes enforceable. The statute uses fair market value.1California Commercial Code §6102(a)(3), (8), and (15) supplies the transaction, agreement-date, and value definitions.

The seller's business also matters. Division 6 generally applies when the seller's principal business is selling inventory from stock, including manufacturing what it sells, or operating a restaurant. The seller must be located in California under the statute's location rule. That makes the first factual questions practical ones: What does the seller principally do? Where is its place of business or chief executive office? What inventory and equipment are actually included?

A restaurant, retailer, or manufacturer may fit the statutory profile. A service business with little inventory may not. The answer does not come from the deal label, the broker's listing category, or whether the parties call the transaction an asset sale. It comes from the seller's actual business and the assets transferred.

Then test the exclusions before building the notice calendar

Even a transaction that looks like a bulk sale may be excluded. Section 6103 lists transfers involving secured-creditor remedies, specified judicial or insolvency proceedings, certain debt assumptions, qualifying reorganizations, statutory transfers, and sales outside the statute's asset-value range. Some exclusions carry their own notice or assumption requirements. They are not shortcuts to be selected after the closing date becomes inconvenient.2California Commercial Code §6103 states the covered seller test, California location rule, and exclusions. The current text excludes sales with net asset value below $10,000 and sales with asset value above $5 million, among other transactions.

The file should preserve the facts supporting the decision. That usually means the asset schedule, agreed consideration, lien information, seller location, description of the seller's principal business, and the specific exclusion if one is used. A one-line conclusion without those inputs will be hard to explain later.

Exhibit · The three coverage gates

If covered, build backward from the statutory sale date

The buyer must obtain the seller's business names and addresses used during the prior three years, give the notice required by section 6105, and follow the creditor-payment rules when section 6106.2 applies. This is buyer-facing law, but the work affects everyone in the escrow. The seller supplies information. The buyer and California co-counsel make the coverage and compliance decisions. The escrow holder carries out the joint written instructions that follow.

The notice identifies the buyer and seller, the seller's other recent business names and addresses, the location and general description of the assets, the anticipated sale date, and whether the creditor-claim process applies. At least 12 business days before the statutory bulk-sale date, the notice must be recorded in the required county or counties, published in the required newspaper, and delivered or sent by registered or certified mail to the appropriate county tax collector. California defines a business day for this section as a day other than Saturday, Sunday, or a state-government holiday.3California Commercial Code §6104 states the buyer's three duties. Section 6105 states the notice content, filing, publication, tax-collector delivery, and business-day rules.

Do not count back from the date everyone hopes to close. First identify the statute's “date of the bulk sale,” because it is tied to when more than 10 percent of the net contract price is paid for the seller's benefit or more than 10 percent of the assets are transferred, whichever occurs later. Deposit and possession terms can therefore matter. California co-counsel should connect the agreement mechanics to the notice calendar before the parties rely on a date.

Creditor claims can change the distribution plan

For a covered non-auction bulk sale within section 6106.2, the creditor-claim process generally applies when the consideration is $2 million or less and is substantially cash, a future cash obligation to the seller, or both. The notice names the person who will receive claims and the deadline, which is the business day before the stated sale date. A claim is timely only if that person actually receives it before the deadline.4California Commercial Code §6106.2(a), (b), and (f) defines the covered consideration, the buyer or escrow agent's payment duty, and the claim deadline.

Timely claims are not ordinary invoices dropped into the file. The statute directs how covered cash consideration is applied to qualifying debts. It also gives rules for disputed claims and for a shortage of available cash. If the parties have used an escrow and filed claims exceed the available consideration, section 6106.4 adds a separate notice and distribution process.

This is why the escrow instructions need more than “pay claims at closing.” They should identify who receives claims, who decides whether a claim is accepted or disputed, what evidence the escrow holder may rely on, what money remains unavailable for seller distribution, and what happens if the claims exceed the fund. The neutral escrow holder should not be asked to decide a legal dispute between the seller and a claimant.

Keep bulk-sale compliance separate from tax clearance

California bulk-sales law and CDTFA successor-liability clearance are different workstreams. The Commercial Code notice and claim process addresses business creditors. CDTFA clearance addresses covered tax liabilities. One does not replace the other.

The same closing may also require lien searches, payoff and release coordination, county personal-property tax work, lease consent, lender conditions, licensing, and franchisor approval. Those items belong on the same calendar, but each needs its own owner and release condition. For the tax track, use the related California CDTFA guide.

Decision checklist before the notice runs

1. What is the seller's principal business, and where is the seller located under section 6103?
2. Does the buyer receive more than half of the inventory and equipment by fair market value?
3. Does a section 6103 exclusion apply, and has California co-counsel documented every condition of that exclusion?
4. What agreement, payment, possession, and asset-transfer dates control the statutory sale date?
5. Which counties and public-notice districts require recording, publication, and tax-collector delivery?
6. Does section 6106.2 apply, who receives claims, and what do the escrow instructions say about accepted, disputed, or excess claims?
7. Are bulk-sale compliance, CDTFA clearance, liens, approvals, and payoffs tracked as separate closing conditions?

What the broker, buyer, and seller need to know

The broker needs the coverage decision and the last workable notice date before managing expectations. The buyer needs California co-counsel's analysis, proof of each notice step, and a claim-handling plan. The seller needs to supply complete names, addresses, asset information, and creditor information early enough to make the notice accurate.

The escrow holder needs joint written instructions that match the statute and the parties' agreement. If the coverage decision changes, the calendar and distribution plan may change with it. Settle those points while there is still room to move the closing date.