In dealing with business sales, often times the seller or the buyer will ask about the use of a corporate escrow service in AZ. Many times the seller wonders why the buyer can’t just pay cash or provide a cashier’s check. Today we’re discussing why both buyers and sellers need the protection offered by escrow professionals.
Escrow does a number of things during the business sale Service transaction that is designed to protect both the buyer and the seller. First, it is important for the seller to know that the buyer’s earnest money deposit or good faith deposit actually has some cash behind it. A corporate escrow service in AZ will deposit the buyer’s check and hold these funds in an escrow account until such time as the transaction closes or is canceled by the buyer and seller.
On occasion, the buyer will discover during the due diligence period that the income of the business was overstated by the seller. The buyer may decide that the business will not generate sufficient cash flow for his/her needs and may choose to cancel the transaction.
If the buyer has given the seller a cashier’s check or cash as a deposit, there may substantial difficulty in getting the deposit back. However, it is generally a simple process to have the deposit funds returned by escrow.
It is also important for the buyer to know if there are any liens against the business and if so to ensure they are paid by the seller. A corporate escrow service will order UCC searches to see that the seller doesn’t have other liens or encumbrances against the assets of the business.
Imagine if a buyer simply handed over a cashier’s check for $200,000 only to find out six months later that there was an outstanding lien for $125,000 that had been recorded against the assets of the business.
Additionally, escrow ensures that a “Notice to Creditors of Bulk Sale” is published so that any other creditors can file any claims they may have against the business or the seller prior to the transaction closing. All of this is done to protect the buyer in the transaction.
The buyer’s funds have to be deposited into escrow several days prior to the closing date. The funds may come from a lending institution, cashier’s check or wire transfer. However, typically the funds are required a few days in advance. This is to protect the seller.
There have been situations where buyers have paid sellers directly with cashier’s checks and then proceeded to the bank to stop payment. Since escrow requires the funds in advance, it prevents this type of situation from occurring.
There are many other benefits to using a corporate escrow service in AZ and most legitimate business brokers will not be involved in transactions where buyers and sellers are transferring funds directly between themselves.
It is always a good idea to have an objective third party hold the funds, make sure there are no additional encumbrances against the business and make sure both the buyer and seller are in agreement on closing prior to releasing funds. After all, once the funds have been disbursed, there’s no going back.
That’s where we come in! If you are in need of an expert corporate escrow service in AZ, call our office today to schedule a consultation.
