Escrow services provide peace of mind for both the buyer and seller when conducting a business transaction. When you involve a third party for any important financial decision for your business, big or small, you are significantly limiting the potential for fraud or mistakes. There are three instances where an escrow service is commonly used, mergers or acquisitions, selling high-value equipment, property, or vehicles, and legal disputes and litigation.
The Process of An Escrow
After a legally binding agreement is made, the funds are put into an escrow account. The paperwork will state what needs to happen before the funds can be transferred out of the escrow account. Escrows may involve multiple transactions or only a single transaction.
If you own or operate a small business, chances are you don’t have extensive experience with escrow operations. An escrow service should be used anytime a large sum of money or legal information is being exchanged. Using a fiduciary with professional expertise to serve as a neutral third-party agent can give you mental freedom from stress knowing that things are getting done properly and in a timely manner.
3 Ways Your Small Business Can Benefit From Using Escrow Services
- Mergers or Acquisitions (M&A)
Mergers and acquisitions are used to describe financial transactions and financial institutions that conduct these types of businesses. Acquisition is when one company becomes an owner of an existing entity, and the seller releases the business to them.
Mergers are two entities forming one single business. This means that both of the CEOs agree that the companies would benefit from merging together to create one company. As this is quite a large project to undertake, most businesses make the decision to enlist the help of professional lawyers who specialize in such areas, like those at Sidley Austin, to ensure that both parties involved receive the best outcome from this venture. Even if you think you have everything under control, it won’t hurt to get some expert advice before taking this huge leap.
When both businesses cannot fulfill their obligations when signing the documents, an escrow service steps in to make sure everything is complete before funds are exchanged. You can also utilize an escrow for a portion of the sale that will be withheld. This will give the buyer time to ensure that everything stated by the seller is accurate and holds true.
The partial purchase retention can last for months or years, depending upon the contract and needs of the buyer. At the end of the retention, the partial amount that was put into escrow will be paid if there are no warranty claims.
- Selling High-Value Equipment, Property, or Vehicles
An escrow service will give you security through every step of a high-value sale. The buyer in the sale of high-value items will have confidence that the products or properties being purchased will be inspected before the funds in the escrow account are released to the seller. The seller knows that the funds are safe in the escrow account and that they will receive the payment in full.
As a small business owner, you have invested your time and energy into every facet of your business. Protect yourself and your assets by involving an escrow service or fiduciary to secure your investments and make sure all paperwork is legitimate and done properly. Using an escrow service is especially important if you are conducting business online. Sometimes the process of selling and buying can be lengthy and an escrow account will ensure you are being paid properly and that the buyer is actually getting what they paid for in the end.
- Legal Disputes and Litigation
Anytime legal matters are being discussed, you want a third party involved. You can avoid having to use an escrow officer by involving an escrow service in the sale from the beginning. An escrow officer has to intervein when something in the sale goes wrong. This could mean that the goods being purchased were not as described and the buyer demands their money back, while the seller also demands to receive the contents of the escrow account.
An escrow officer has no favoritism to the buyer and seller and if they exhibit such traits it is a breach of their duties and lawful action will be taken on the officer. The escrow officer’s employer may also be charged with liability if favoritism is taking place. When the escrow officer cannot come to an agreement for the buyer and seller the funds are taken to court.
Let An Escrow Service Protect Your Assets
With your company’s success at stake, don’t risk errors and manipulation when it comes to high-value transactions. You have worked hard to keep your small business afloat, let someone else work hard to ensure that your company’s integrity and assets are protected.