Deposit
A deposit is a sum of money a buyer puts forward, usually on signing the definitive purchase agreement, to show they are serious about closing. It is typically held by a lawyer or escrow agent and applied to the purchase price at closing, with the agreement setting out exactly when it becomes non-refundable.
A deposit is different from the full purchase price. It is a smaller amount, often five to ten percent of the deal value, paid once the buyer and seller sign the definitive agreement. The purpose is to signal commitment and give the seller some protection if the buyer later refuses to close without a valid reason.
Who holds the money
In most Canadian small business deals, the deposit is not paid directly to the seller. It sits with a neutral third party, commonly a lawyer’s trust account or an escrow agent, until closing. This protects both sides: the seller knows the money is real and committed, and the buyer knows it will not be spent before the deal closes or falls apart.
When it becomes non-refundable
The definitive agreement should spell out exactly what happens to the deposit if the deal does not close. If closing conditions fail through no fault of the buyer, the deposit is usually returned. If the buyer simply walks away after conditions are met, the seller often keeps some or all of it.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryEscrow and Holdbacks in an Ontario Business Sale
- 02Treadstone LawLegal commentaryConditions Precedent to Closing in an Ontario Business Sale Agreement
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