Who Can Open a Holding Escrow Account?

This is the part that surprises people. You do not need a realtor. You do not need a lawyer. You do not need a bank. If you are buying a business, selling equipment, or transferring assets, you can walk into a licensed escrow company and open a holding escrow account yourself. The other party does not even have to be there on day one. You just need a deal and a willingness to put it in writing.

At Secured Trust Escrow, we open holding escrows for individuals, corporations, LLCs, partnerships, and trusts. The process is the same regardless of who you are. You tell us what you are trying to do, we draft the instructions, and both parties sign. That is it. Here is who can open one and what they need to bring.

Individual Buyers and Sellers

Any individual who is party to a private transaction can open a holding escrow. This is the most common scenario. One person is buying a boat from another person. A freelancer is selling a website to a small business owner. An artist is transferring copyright to a publisher. If money is changing hands and neither side fully trusts the other, an individual can initiate escrow.

The individual needs government-issued identification and a clear description of the transaction. The escrow company will verify identity to comply with anti-money laundering regulations. They will also ask for contact information, the other party’s information, and any existing agreements or contracts. If there is no written contract yet, the escrow instructions themselves become the binding document once both parties sign.

Business Entities and Corporate Buyers

Corporations, LLCs, and partnerships open holding escrows all the time. In fact, most business sales and asset transfers involve entities rather than individuals. When a corporation buys another company, the acquiring entity opens the escrow. When a partnership sells its share of a venture, the partnership initiates the process.

Entity openings require additional documentation. The escrow company needs the articles of incorporation or organization, a certificate of good standing, and proof that the person signing has authority to bind the entity. This usually means an operating agreement, corporate resolution, or signed authorization letter. The escrow company verifies this because they cannot accept instructions from someone who does not legally speak for the business.

International Buyers and Foreign Entities

Foreign individuals and entities can open holding escrows in California, but the process involves extra verification. The escrow company must comply with federal anti-money laundering laws and may need to verify the source of funds. International buyers should expect to provide passport identification, proof of address, and documentation showing how the funds were acquired.

If the seller is a foreign person and the transaction involves U.S. real property interests, FIRPTA withholding requirements may apply. Even in holding escrows that do not involve real estate, escrow companies must be cautious about international wire transfers and may require additional lead time for funds to clear. The key is to start the conversation early and provide documentation upfront.

Attorneys and Brokers Acting on Behalf of Clients

An attorney or business broker can open a holding escrow on behalf of their client, but the client must still be the named party in the instructions. The attorney cannot be the beneficiary of the escrow unless the instructions specifically name them, which is rare. Usually the attorney acts as a facilitator, gathering documents and communicating with the escrow company while the client makes the final decisions.

Brokers who facilitate business sales often recommend escrow companies to their clients and may help coordinate the opening. But the broker does not sign the escrow instructions unless they are a party to the transaction, which they usually are not. The escrow relationship is strictly between the buyer, the seller, and the escrow company.

What You Need to Open a Holding Escrow

Common Mistakes When Opening Holding Escrow

Opening Without the Other Party’s Knowledge

You can start the process, but you cannot complete it alone. The escrow instructions require signatures from all parties. If you open escrow and the other side refuses to sign, you have wasted time and possibly an opening fee. The best practice is to agree on the basic terms with the other party before contacting the escrow company. At minimum, confirm that they are willing to use escrow and that they agree on the broad strokes of the deal.

Using an Unlicensed Company

California requires any company engaged in the escrow business to be licensed by the DFPI. Unlicensed operators are illegal and offer no protection if they disappear with your money. Before you deposit anything, verify the company’s license on the DFPI website. It takes two minutes and it is the single most important check you can do.

Vague Transaction Descriptions

When you call an escrow company, be ready to explain what you are doing. I am buying a restaurant. I am selling a domain name. I am transferring equipment. The more specific you are, the faster the escrow officer can draft accurate instructions. Vague descriptions lead to back-and-forth revisions and delays that could have been avoided with a five-minute conversation upfront.

Frequently Asked Questions