In finance, the word “escrow” refers to arrangements by which assets are placed in the trust of a third party – normally a financial intermediary – until certain conditions have been met. Once conditions are met, assets are transferred to a beneficiary.
Typically, escrow arrangements involve three parties: A buyer, a seller and an “escrow agent”. Assets paid by the buyer are held “in escrow” by the escrow agent until the seller fulfills their contractual obligations.
This term is often used in reference to real estate or stock market transactions in which money paid for a property is held by an intermediary during a withdrawal period. Only if the buyer does not withdraw from the contract during the withdrawal period is the money passed on to the seller.
An escrow may also be used in corporate acquisitions to ensure that the shareholders of the target company only receive payment for their shares after the company fulfills the terms of the acquisition and vice versa.
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