Who is regulated to hold escrow money in a Canadian business sale?

A search for an “escrow licence” in Canada leads to different rules depending on who holds the money. The sources checked for this page do not set out a single licence for escrow agents. They do govern two kinds of holder: trust companies and lawyers. This page covers the federal Act, Ontario and British Columbia. It does not say whether a given escrow arrangement is permitted.

Trust companies under the federal Act

Under the Trust and Loan Companies Act, the Superintendent may, on application by a company, make an order approving the commencement and carrying on of business by that company (s.53), subject to the conditions in s.56. Under s.57(1), the order may, at the Superintendent’s discretion, authorize the company to carry on the activities referred to in s.412. Under s.57(2), a company whose order contains that authorization, or the authorization referred to in s.52(3) or s.58(1)(a), is a trust company under the Act. Section 412 says no company, other than such a trust company, may act in Canada as a trustee for a trust, or as an executor, administrator or in the other roles it lists.

Trust corporations in Ontario

Ontario’s Loan and Trust Corporations Act continues a Trust Corporations Register (s.30(2)). Section 1 defines a trust corporation as a body corporate incorporated or operated both to offer its services to the public as trustee, bailee, agent or in the other roles listed, and to receive deposits from the public and lend or invest them. Under s.31.1(2), no corporation is registered as a trust corporation unless it is authorized to act as a trustee under the federal Act. Section 213(5) says no corporation other than a registered one may hold itself out to the public in Ontario as a registered corporation by conducting, undertaking or transacting any part or aspect of the business of a trust corporation or loan corporation.

Lawyers and trust accounts in British Columbia

Where a lawyer holds the money, the law society’s rules apply. In British Columbia, Law Society Rule 3-58(1) says that, subject to Rule 3-58(2) and Rule 3-62, a lawyer who receives trust funds must deposit them in a pooled trust account as soon as practicable. Under Rule 3-58(2), a lawyer who receives trust funds with instructions to place them otherwise than in a pooled trust account may place them in a separate trust account, in accordance with Rule 3-61 and the Act. Rule 3-58.1(1) says that, except as permitted by the Act or the rules or otherwise required by law, a lawyer or law firm must not permit funds to be deposited to or withdrawn from a trust account unless they are directly related to legal services the lawyer or firm provides. Rule 3-58.1(3) makes an exception for retainers for services as a mediator, arbitrator or parenting coordinator. Whether a particular escrow falls within that rule is a question for the lawyer and the Law Society, not this page.

What to confirm before money moves

• Who will hold the funds: a trust company, a law firm’s trust account or someone else.
• Whether that holder is registered or authorized in the place where it operates.
• Which law society governs the lawyer, if a lawyer is holding the funds.
• What the written escrow instructions say about release.

For the role itself, see the escrow agent definition. For how escrow differs from a deposit, see deposit vs escrow. Rules for other provinces are not covered here, so check the law society where the lawyer practises.