Definition
Escrow
On this page7 sections
What it is
Escrow means money sitting with a neutral party — usually an attorney — under written instructions that say who gets it, when, and on what proof. It exists because the two sides need something to happen in a specific order and neither wants to go first.
The three escrows in a small acquisition
1. Deposit escrow
The buyer’s good-faith deposit, held from signing until closing. What matters is not the amount but the release conditions: name precisely what makes the deposit refundable and what forfeits it. “Refundable during diligence” without a defined diligence end date is an argument waiting to happen.
2. Indemnity holdback
Part of the purchase price held back after closing against problems that surface later — a warranty that proves untrue, a liability that was not disclosed, a receivable that never collects. Three terms decide whether it is real protection or decoration: how much, how long, and what claims process releases or draws on it. A holdback with no claims mechanism is a payment schedule.
3. Bulk-sale escrow — the New York one
This is the escrow that is not optional. New York can hold a buyer of a business’s assets liable for the seller’s unpaid sales tax through successor liability, which the notice process is designed to prevent.[1] Form TP-153 carries the purchaser warning and the at-least-10-day notice timing.[2]
The mechanics matter: after the buyer files notice, the Tax Department responds either releasing the buyer or indicating a possible claim. Where a possible claim is indicated, the buyer does not pay the seller — the purchase price goes into escrow while the Department determines the amount. Get the sequence and the deadlines from the bulk-sale guide, because they run off your closing date and they are the buyer’s responsibility.
Write the release conditions before you agree the amount
Negotiations fixate on the size of a holdback. The size is the less important half. An escrow is only as good as the sentence describing what releases it, and disputes are almost always about the condition rather than the number.
For each escrow in your deal, be able to answer in one line: who holds it, what single event releases it, who decides whether that event happened, and what occurs if the parties disagree. If any answer is vague, fix it in the letter of intent rather than in the definitive agreement, when you still have leverage.
Escrow is not the same as the working-capital true-up
Buyers conflate them. A holdback covers things that turn out to be wrong. The working-capital adjustment covers the normal operating resources delivered at closing and settles on a measurement, not a dispute. A deal can need both, and each should be documented separately.
The full guide: Escrow, holdbacks and indemnities.
Frequently asked questions
Who should hold the escrow?
Normally one side’s attorney under written escrow instructions signed by both parties, or an independent escrow agent for larger amounts. What matters more than the identity is that the instructions are signed, specific about the release condition, and specific about what happens in a dispute.
Is the bulk-sale escrow negotiable?
The protection is not something to trade away. Successor liability for the seller’s unpaid sales tax can attach to the buyer, and the notice-and-escrow process is what prevents it. A seller pressing you to skip it is asking you to accept an unquantified liability on their behalf.
How long should an indemnity holdback run?
Long enough for the risks it covers to surface. That is a judgement about the specific business — a tax exposure and a customer-concentration exposure have very different tails — and it is a question for your attorney rather than a standard number.
What happens to escrowed money if the deal falls apart?
Whatever the escrow instructions say, which is exactly why they need to be written before the money moves. Escrow disputes are expensive precisely because the parties are arguing about a document they agreed when neither expected to need it.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 NYS Department of Taxation and Finance. Bulk sales. https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/bulk_sales.htm
- 2 NYS Department of Taxation and Finance. Form TP-153: Sale or Transfer of Assets — Information for Purchasers. https://www.tax.ny.gov/pdf/current_forms/st/tp153.pdf
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.