- Agency
- The California Employment Development Department, known as EDD
- Form or filing
- A change or closure of the seller's employer account, an application to transfer the unemployment insurance reserve account where it applies, and final payroll tax returns
- Timing
- Report the change when the sale closes and file final quarterly returns for the last period you paid wages
Common snag: Leaving payroll returns open. Unpaid payroll tax can follow the business to a successor, and a buyer's lender or escrow officer may ask for proof it is settled.
Close or Change the Account
If you pay wages in California, you have an employer account with EDD. When the business is sold you report the change and file final returns for the last quarter you paid wages. Use EDD's online services or the current change form.
Reserve Account Transfers
When a buyer takes over all or part of a business, EDD may transfer part or all of the seller's unemployment insurance reserve account to the buyer. In some cases the transfer is required, in others the buyer applies for it.
A transfer moves the seller's claim history too, which can raise or lower the buyer's tax rate. Buyers should ask before closing.
Successor Liability
Like sales tax, unpaid payroll taxes, including unemployment insurance, disability insurance and withheld income tax, can reach a buyer who takes over the business. Buyers often ask sellers to prove everything is filed and paid.
Escrow holdbacks are common when records are not ready.
Gather These Records
Pull payroll reports for the last several quarters, copies of filed returns and proof of payments. Clean payroll records also help buyers feel safe about the team they inherit.
Ask Your CPA to Check the Last Four Quarters
Before you list, have your CPA confirm that every quarterly payroll return and deposit matches the payroll reports.
Differences between EDD records and your books are a common reason buyers hesitate. Fixing them early costs less than fixing them under a deadline.
Employee Records
Buyers who keep staff want a roster with start dates, pay rates and job titles. Keep tax forms, work authorization records and pay records organized. Missing files or off the books pay are major red flags that can end a deal.
Related Steps
Read the CDTFA clearance guide, then the LLC cancellation guide. See transition terms for how staff are handled.
If You Sell the Whole Company
In a stock sale the employer account usually stays with the company, so the buyer inherits the payroll history, tax rate and any open items.
In an asset sale, you close or change your account and the buyer sets up their own, unless EDD treats them as a successor. Ask your attorney which applies.
Questions to Ask Before Closing
Ask your CPA whether your payroll filings match your books, whether the buyer wants the reserve account transferred and how that changes your tax rate. Ask escrow whether payroll proof is part of the closing list.
Settle these points before the buyer asks.
Before You Close
This is general information, not tax or legal advice. EDD forms and procedures change, so confirm them on the EDD website and with your CPA. Next, request a valuation call.