Escrow Agreements: Definition and enterprise use

By Juan Carlos Gallegos, Partner of ILP Global – Gallegos, Valarezo & Neira

Escrow agreements

What are Escrow Agreements?

An Escrow Agreement is used when two or more parties require an asset to be held by an independent and trusted third party, later to be released if certain contractual conditions set out in an Escrow Agreement are satisfied.

The number of escrow enquiries in commercial transactions have increased considerably which forced service providers to create Escrow alternatives, both private or through Fiduciary Companies, by using the so called “Encargos Fiduciarios” as helpful Tools for a variety of transactions, including the holding of funds in respect of the sale of businesses and matrimonial settlements surrounding both property and child maintenance.

Escrow Agreements are proving to be a highly attractive option for individuals, families and businesses looking to protect wealth and a variety of other assets as they are transferred between various parties. Whilst Escrow Arrangements have most commonly involved the holding of cash, the arrangement can be used to hold physical assets which could, for example, include property, computer software, source codes, art, deed of titles, investments and share certificates.

Escrow Agreements Use

The use of Escrow Agreements is not only suited to holding assets in the short or medium term, but also covering a number of years. For example, safe keeping of properties of under aged individuals until they reach 18, 21, or 25 years. In line with the above, typically interest and need for Escrow Arrangements for individuals come when people are at a transitional period of their lives.

The ways that Escrow Agreements can be used is becoming increasingly varied for both individuals and businesses. The Escrow structure ensures that the money is protected for both parties during the relevant period but also demonstrates the company’s commitment and ability to fund the payment. For companies who employ staff who are subject to restrictive covenants, an Escrow Arrangement can offer security of the funds equally for both parties.

All in all, Escrow Agreements are proving to be a highly attractive option for parties looking to ensure that transactions take place efficiently and with minimal risk – whether these are highly complex, international transactions for large corporations or something more straightforward and closer to home for individuals or families.

Part of the services Gallegos, Valarezo & Neira offers regarding Escrow Agreements, include: (i) Drafting of the Escrow Agreements and Encargos Fiduciarios; (ii) Reporting of escrow activity; (iii) Processing and facilitating of payment requests and communication.

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