The Purpose of Escrow

• "The Complete Guide to Selling a Business" says the basic principle of business escrow agreements is the same as with a home sale: If the deal doesn't go through, you can recover your money or property from a third-party escrow agent without the problems you could face recovering it from the person you sold to. Escrow agents usually charge a fee for the service; the book says real estate companies are often willing to handle escrow for other transactions, but you can also use a lawyer.
  
  

Business Sales

• Escrow agreements are useful when selling control of a corporation or a limited liability company, rather than the business assets, according to "The Complete Guide to Selling a Business." The seller places stock certificates or LLC documents with the escrow agent, under an agreement that says the agent will return the documents to the seller if the buyer doesn't pay.
  
  

Software Agreements

• Businesses buying software from IT companies sometimes require the software source code and support documents be placed in an escrow account. Attorney Judith Silver says this protects a business relying on someone else's software: If the IT company goes bankrupt, the business can keep using the software. Silver says the agreement should require the software vendor to update the material regularly and guarantee that the material is free of viruses or Trojan horses; define the triggering event that gives the business access to the software; and set the time frame after the event in which the escrow agent has to provide it.
  
  

Bulk Sales Escrow

• Freedictionary.com defines bulk-sales escrow as an agreement in which creditors--worried that a business has taken on too much debt and might not repay them--force the business to sell a large amount of inventory and place the proceeds with the escrow agent. The agent transfers the proceeds to the creditors when the sale is complete. This ensures that the money goes to the creditors rather than the business spending it somewhere else.
  
  

Considerations

• Silver says the agreement must spell out the escrow agent's fees, who pays them and what happens if they're unpaid. Some contracts allow the agent to place a lien on the account if he doesn't get paid; if the buyer is paying the fees, the seller should include a clause that says she can pay if the buyer reneges. The escrow agent should be obligated to protect the parties against loss of the account, though the agent may want protection to limit her liability.