4 Key Differences in Business Escrow

Most people think of escrow as something that happens when you buy a house. A title company holds funds while the buyer gets a loan and the seller clears liens. Business escrow is a different animal entirely. The assets are not fixed to a parcel of land. They include equipment, inventory, contracts, trademarks, and customer relationships. The verification process is deeper. The risks are different. At Secured Trust Escrow, we handle both types, and business escrow requires a fundamentally different approach. Here are the four key differences every buyer and seller should understand.

1. The Assets Are Intangible and Mobile

In a real estate transaction, the asset is a parcel of land with a building on it. It does not move. You can walk the property, inspect the foundation, and verify the boundaries with a survey. In a business escrow, the assets are a mix of tangible and intangible items. Equipment can be moved or swapped. Inventory can be sold or depleted. Customer contracts can be canceled. Intellectual property can be encumbered by licenses the buyer never knew about. The escrow company must verify not just what exists but what is transferable. This requires a deeper review of contracts, a UCC search for liens, and confirmation that the seller has the right to transfer every asset listed in the schedule.

2. Due Diligence Is Longer and More Complex

Real estate due diligence typically takes 30 to 45 days. The buyer gets an inspection, an appraisal, and a title report. Business due diligence can take 60 to 90 days or longer. The buyer must review financial statements, tax returns, employee records, vendor contracts, customer lists, litigation history, and regulatory compliance. The escrow company coordinates the document delivery, verifies that the buyer has received everything required by the purchase agreement, and holds funds until the buyer confirms that due diligence is satisfactory. This extended timeline means the escrow company must manage the deposit for a longer period and often must handle multiple deposit installments as the buyer hits due diligence milestones.

3. Corporate Authority and Intellectual Property Matter

Real estate escrow verifies that the seller owns the property and that the title is clear. Business escrow verifies that the seller owns the entity or the assets, that the person signing has authority to sell, and that the intellectual property is unencumbered. The escrow company must review corporate resolutions, verify that the officers or members have the power to execute the sale, and confirm that patents, trademarks, and copyrights are properly assigned. If the seller is a single-member LLC and the member is the only signer, the verification is simple. If the seller is a corporation with multiple shareholders and a board of directors, the escrow company needs board resolutions, shareholder approvals, and sometimes SEC filings. This layer of corporate verification does not exist in real estate transactions.

4. Post-Closing Milestones and Earnouts

Real estate escrow closes in a single event. The buyer gets the deed, the seller gets the money, and the transaction is done. Business escrow often includes post-closing provisions. The buyer might hold back 15% of the purchase price for 12 months to cover indemnification claims. The seller might earn an additional payment if the business hits revenue targets in the first year. The escrow company manages these post-closing milestones by holding the reserve funds in a separate account, tracking the milestone dates, and releasing funds only when the conditions are met. This means the escrow relationship continues long after the initial closing, sometimes for two years or more. The escrow company must maintain records, respond to claims, and administer the release schedule according to the purchase agreement.

Need a business escrow that understands the complexity? Contact Secured Trust Escrow for business escrow services that handle corporate verification, asset checks, and post-closing milestones.