Frequently Asked Questions

What is the significance of holding part of the purchase price in escrow in relation to the bulk transfer law?

The significance of holding part of the purchase price in escrow in relation to the bulk transfer law is primarily to protect the buyer from potential liabilities. The bulk transfer law is designed to safeguard business creditors, stipulating that if a buyer notifies the seller's creditors in advance about the purchase of the seller's assets, the buyer will not be liable for the seller's debts and obligations. However, if the buyer does not comply with the bulk transfer law, they may be held responsible for the seller's debts post-purchase. In many cases, to avoid the tedious process of compliance with the bulk transfer law, buyers and sellers may agree to waive compliance. However, to protect themselves, buyers often demand that a portion of the purchase price be held in escrow for a certain period. The amount to be held in escrow is determined after the seller discloses information about its outstanding debts and obligations. This provides a safety net for the buyer, ensuring they have funds to cover any potential liabilities that may arise from the seller's creditors.