Protecting Buyers & Sellers –
The Make-or-Break Moment for LA Entrepreneurs
In a city where over 5,000 small businesses change hands annually—from Echo Park coffee shops to aerospace suppliers in El Segundo—the escrow process often determines whether an acquisition succeeds or collapses in litigation. At Secured Trust Escrow, we’ve facilitated everything from $50K bakery sales to $50M tech buyouts. Here’s what every LA business buyer and seller must understand about acquisition escrow.
Why Business Escrow is More Complex Than Real Estate
5 Unique LA Challenges:
1. Valuation Disputes (Goodwill calculations vary wildly by industry)
2. Employee Retention Risks (Non-compete enforceability is limited in CA)
3. Hidden Liabilities (Unreported city business taxes, unpaid vendors)
4. Seller Financing (30% of deals use carryback notes)
5. Entertainment Industry Quirks (Talent contracts, royalty streams)
The Escrow Advantage:
✔ Holds funds until all conditions are met
✔ Verifies asset transfers
✔ Mediates post-closing disputes
The 3 Most Common Business Escrow Structures
1. Asset Purchase Escrow
– Typical Holdbacks:
– 10-15% for 12-18 months (indemnification)
– 5% for tax liabilities
– LA-Specific Needs:
✔ Health department clearance (food businesses)
✔ Entertainment union obligations
2. Stock Purchase Escrow
– Special Considerations:
– Shareholder approval tracking
– Option/WARRANT conversions
– 100% of funds often held until all shares transfer
3. Merger Escrow
For when entities combine:
– Surviving company controls escrow
– Dissenting shareholder payouts held separately
LA’s Problem Industries for Business Escrow
| Industry | Unique Escrow Needs
| Restaurants | Health department lien checks
| Cannabis | 280E tax liability reserves
| Entertainment | Royalty stream verification
| Construction | Bond/insurance compliance
| Tech Startups | IP assignment confirmations
The 60-Day Escrow Timeline (Typical)
Day 1-15:
– Open escrow with signed LOI
– Deposit 3-10% earnest money
Day 16-30:
– Due diligence period
– Adjust purchase price based on findings
Day 31-45:
– Finalize asset/liability schedules
– Obtain necessary licenses
Day 46-60:
– Sign closing documents
– Gradual fund release begins
5 Costly Mistakes We Prevent
1. Undisclosed City Business Taxes (LA’s tax office is aggressive)
2. Improper Bulk Sale Notice (Can void the transaction)
3. Missed Contract Assignments (Commercial leases, service agreements)
4. Employee Claims (Unpaid wages, wrongful termination risks)
5. Seller Competition (Even with non-competes, CA law favors employees)
Case Study: The Silver Lake Yoga Studio Disaster
A $750K sale nearly collapsed when:
– Seller failed to disclose expired lease option
– Landlord demanded $120K in back rent
– 6 instructors quit simultaneously
Our Escrow Solution:
1. Held $150K in reserve
2. Negotiated lease extension
3. Structured retention bonuses
4. Deal ultimately closed with $85K adjustment
Why Generic Escrow Fails for Businesses
Most providers don’t understand:
✔ LA city business tax nuances
✔ Entertainment union requirements
✔ Cannabis industry banking challenges
✔ Tech startup cap table complexities
Our acquisition team includes:
– Former business brokers
– Franchise specialists
– Cannabis compliance experts
The Future of Business Escrow
Emerging trends:
– AI-powered due diligence
– Tokenized escrow for crypto deals
– Automated earnout verifications
Buying or Selling a Business?
🏢 Contact our acquisition escrow specialists today.
