Bulk Sale - Application

Application

Although statutes vary, the legal requirements for a bulk sale generally apply to a sale of all or most of the materials, supplies or inventory of a business in a way not normally done in the ordinary course of the seller's business. Bulk transfers are governed by Uniform Commercial Code Article 6. However, Article 6 has been repealed by most states, in favor of revisions to other provisions of the UCC that apply to sales and secured transactions.

The sale of an entire inventory is not a bulk sale if it is sold to buyers in a manner that ensures adequate consideration. For example, if a merchant holds an auction sale for the entire contents of the business and the sale is in good faith, the buyer in not required to comply with bulk sales legislation. However, the buyer of a business with inventory would be expected to complete the bulk sales registration as part of the normal course of closing the sale. Similarly, if a merchant has a deep discount sale, that is not a bulk sale as deep discounts can be made in the ordinary course of business.

In the modern era, many retail businesses operate on consignment or short credit terms, so compliance with bulk sales registration in the purchase of such a business, or its assets, is generally mandatory. For example, in a typical convenience store, generally the terms of sale are on consignment (return for full credit, pay for what you keep) or 30 days net (pay 30 days after delivery), with very little cash up front. As such, little of the inventory in a convenience store has actually been paid for by the merchant, and suppliers expect to be paid out of the ongoing cash flow of the business.