Choosing the Right Escrow Company for Business Transactions

Jared W. Johnson Podcast

Insights from an Experienced

Business Transaction Specialist

Welcome to the Before You Buy or Sell a Business podcast. We provide valuable insights and advice for buyers and sellers in the business acquisition process. In this episode, we have a special guest, Ron Quinn from Accelerated Law Group, who has over 22 years of experience in handling business transactions. Ron shares his expertise and discusses the important factors that buyers and sellers should consider when choosing the right escrow company for business transactions, the process of asset purchases, the impact of bulk sale laws, and the rise of stock purchases in recent years.

Choosing the Right Escrow Company

When it comes to selecting an escrow company, Ron emphasizes the importance of finding a company that understands business transactions. He highlights the complexity of these transactions. Transactions can involve multiple parties such as buyers, sellers, landlords, and attorneys. Ron advises buyers and sellers to look for escrow companies that specialize in business transactions and have a strong background in business and legal matters. He also cautions against using escrow companies that do not have experience in this specific field. Not all escrow companies are equipped to handle the intricacies of a business sale.

The Process of Asset Purchases

Ron provides a detailed overview of the typical asset purchase process. Once a purchase agreement is in place, the buyer conducts due diligence to ensure they want to proceed with the transaction. During this period, the escrow company conducts various searches and investigations to verify the accuracy of the information provided by the seller. This includes checking business licenses, tax records, lease agreements, and other relevant documents. As the closing date approaches, the escrow company prepares the necessary documentation and facilitates the transfer of assets and funds between the buyer and seller.

Understanding Bulk Sale Laws

Ron explains that bulk sale laws vary from state to state. In California, for example, there is a bulk sales law that requires sellers to publish a notice in the newspaper and send a notice to creditors before the sale can be completed. This law also imposes transfer tax liability on the buyer based on the value of the personal property being transferred. In Nevada, however, the bulk sales law was repealed in 1991, but there are still successor liability issues related to taxes and other obligations. Ron advises buyers and sellers to be aware of the specific laws in their state. Seek professional guidance to ensure compliance.

The Rise of Stock Purchases

Ron notes that stock purchases have become more common in recent years, especially since a change in the law allowed business brokers to sell stock. He explains that stock purchases or membership interest purchases can be advantageous in certain situations, such as when there are contracts in place that are not assignable. However, he cautions against choosing a stock purchase solely because it seems easier. Ron advises buyers to carefully consider the specific circumstances and potential liabilities associated with stock purchases before making a decision.

Ron Quinn

Key Elements in a Purchase Agreement

Ron highlights several important elements that should be included in a purchase agreement. These include a clear description of the business, a list of assets being transferred, provisions for trade name and social media assignment, a covenant not to compete, lease assignment details, seller financing terms, and provisions for training. Clear and concise language in the agreement removes ambiguity and potential disputes.

The Importance of Due Diligence

Ron advises buyers to conduct thorough due diligence before finalizing a business purchase. This may involve reviewing financial statements, tax returns, sales tax records, lease agreements, and other relevant documents. He also recommends verifying the accuracy of the information provided by the seller; not all sellers are forthcoming. Also, ensure that all necessary licenses and permits are in order. Ron emphasizes the need for open communication between the buyer and seller during the due diligence process to address any concerns or questions that may arise.

Seller Financing Considerations

When it comes to seller financing, Ron suggests treating the seller as a lender and following standard lending practices. This includes drafting a promissory note, a security agreement, and potentially obtaining a personal guarantee. Buyers need to consider the term of the loan, the interest rate, the payment structure, and any collateral that may be required. Treat seller financing as a professional transaction and ensure that all terms are clearly defined and agreed upon by both parties.

The Challenges and Rewards of Business Transactions

Ron shares some of the challenges he has encountered in his years of handling business transactions. He highlights the highly personal nature of these transactions for sellers, who have invested their time, effort, and emotions into building their businesses. Ron emphasizes the importance of effective communication and managing expectations to ensure a smooth transaction. He finds the variety and complexity of business transactions rewarding and stimulating.

In conclusion, buying or selling a business is a complex process. It requires careful consideration and expert guidance. Ron Quinn’s insights and expertise shed light on the key factors that buyers and sellers should consider when entering into a business transaction. By choosing the right escrow company, conducting thorough due diligence, and understanding the implications of different types of purchases, buyers and sellers can navigate the process with confidence. With the guidance of experienced professionals like Ron, buyers and sellers can achieve successful and rewarding business transactions.

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DISCLAIMERThe views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.