How is the deposit handled in a business sale?

The deposit is one of the first real money moments in a deal, and its handling is set out in the purchase agreement, not left to informal understanding between the parties, which is exactly why the wording matters more than either side usually expects going in.

Who actually holds the money

Rather than being paid directly to the seller, a deposit is commonly held in trust by a lawyer or a dedicated escrow agent until closing or until an agreed release event occurs. This protects both sides — the seller cannot spend money that might have to be returned, and the buyer is not relying on the seller’s ability to repay it if the deal collapses.

When it is released to the seller

At closing, the deposit is applied toward the purchase price rather than paid twice — it becomes part of the funds the seller receives, not an amount on top of it. Before closing, release generally requires either both parties’ written direction or satisfaction of whatever release condition the agreement specifies.

When the buyer gets it back

If the deal fails to close because a condition in the buyer’s favour is not satisfied, such as financing not coming through, diligence turning up a defined problem, or a required consent not being obtained, the agreement typically returns the deposit to the buyer. This is why the conditions in the agreement need to be drafted precisely — a vaguely worded financing condition can leave a buyer arguing after the fact about whether it was actually triggered.

When the seller keeps it

If the buyer simply walks away without a contractual basis for doing so, not because a condition failed but because they changed their mind, the agreement commonly allows the seller to keep the deposit as compensation for taking the business off the market and the time lost. This is the sharpest edge of the deposit mechanism, and it is exactly why a buyer should understand, before signing, which of their outs are real contractual conditions and which are simply hopes.