If you intend to purchase a business whose primary activity is the sale of inventory, you should make sure that the purchase agreement contains a statement that the seller will comply with a law known as the Bulk Sale Act, or build adequate protections if the Bulk Sale Act is not intended to be complied with. If you do not implement one of these two alternatives, you could be in for a big surprise after the acquisition. The Bulk Sale Act, which has been adopted by most states, requires businesses that sell inventory to follow certain procedures when the business itself is sold. Those procedures include providing notice to creditors prior to the sale, and providing a list of creditors and schedule of assets to the buyer. The buyer is typically responsible for assuring that creditors are paid out of closing proceeds. Often buyers and sellers choose not to notify creditors ahead of the sale so as to not disrupt the normal flow of business. In this instance, a buyer and seller may agree to waive compliance with the Bulk Sale Act. Be aware, however, that if the Bulk Sale Act is not complied with and, as a result, the seller’s creditors are not paid, any creditor can basically disregard the sale and pursue the collection of the debt owed to it against the assets transferred to the buyer. As the buyer, you must therefore either require the seller to comply with the Bulk Sale Act or build in adequate protections to assure that failure to comply with the Bulk Sale Act will not have negative ramifications to you.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress
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