Escrow agent
An escrow agent is a neutral third party, often a lawyer or trust company, who holds money or documents on behalf of a buyer and seller until specific conditions in the deal are satisfied. Once those conditions are met, the escrow agent releases the funds or documents according to the agreement’s instructions.
Business sales often involve money that cannot simply be handed over at signing. A buyer’s deposit, a holdback meant to cover post-closing indemnity claims, or documents pending a final approval all need somewhere safe to sit. That is the job of the escrow agent, who holds the item under written instructions both sides have agreed to in advance.
How escrow works in practice
The escrow agent does not decide who is right if a dispute arises. It follows the escrow agreement, a separate short contract that says exactly what triggers release of the funds, whether that is a closing date being reached, a survival period expiring, or both parties jointly instructing release. In many Canadian small business deals, each side’s lawyer, or a shared law firm trust account, plays this role rather than a dedicated escrow company.
Why it matters
Using an independent escrow agent reduces the risk that one side simply refuses to release funds once a dispute starts. It also gives both parties a clear, written record of what has to happen before money moves.
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 commentaryHow Money Actually Moves on Closing Day in an Ontario Business Sale
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