About escrow and escrow agent services
Escrow is the term used when assets are held by a neutral third party on behalf of two contracting parties, subject to a transaction (such as a contract of sale) between them being completed, and until certain obligations or conditions under the agreement have been met.
As an escrow agent, Sovereign will hold the transaction funds in our custodian escrow bank accounts in Hong Kong on behalf of clients, in accordance with the terms and conditions of an escrow agreement, until we receive the appropriate instructions or until predetermined contractual obligations have been fulfilled.
We offer escrow solutions that can be applied to straightforward or complicated agreements involving domestic transactions under a single currency or multi-jurisdictional transactions involving multiple currencies, within varied accounting and legal frameworks.
The escrow process
Typically, the escrow process for a buy and sell business transaction involves the following steps:
- Firstly, Sovereign will perform due diligence on the contracting parties as part of the onboarding process. This will also include identifying the source of funds that are to be used for the transaction.
- Sovereign will prepare the escrow agreement (which is drafted subject to the terms of the principal agreement).
- The escrow agreement is then reviewed and agreed by the contracting parties.
- The buyer deposits money into the escrow account in accordance with the purchase price under the principal agreement.
- Sovereign confirms receipt of the transaction funds in the escrow account to both contracting parties.
- If the buyer approves, and subject to the terms and conditions of the escrow agreement being met, the payment event is triggered, and both the buyer and seller will notify Sovereign for the release of the funds.
- Completion of the transaction takes place and Sovereign releases the escrow funds from the escrow account to the seller in accordance with the terms of the escrow agreement.
Benefits of escrow agreements
- Protection – the interests of both transaction parties are protected because the payment funds are held by a neutral, trusted third-party escrow agent.
- Reduced risk – counterparty or market risks are minimised.
- Assurance – the escrow agent provides independent assurance of escrow objectives.
- Speed – Sovereign has escrow accounts available for immediate use (subject to the onboarding of clients)
- Efficiency – an escrow account helps facilitate efficient and secure transactions and payments for all parties involved in an acquisition.
- Confidentiality – the escrow agent is the escrow account holder, so the details of the parties to the escrow agreement do not appear on any public register.
Where can escrow services be used?
Escrow services can be used in almost any situation where funds or assets are being transferred between buyers and sellers. It is recommended in particular for payments in the following types of transaction:
Why use Sovereign's escrow services?
As an escrow service provider, Sovereign is an independent party in escrow transactions, holding funds or assets in the escrow account until all contractual obligations have been met.
Sovereign will not provide legal advice in respect of the transaction between the contracting parties. As an impartial intermediary, we are there to ensure that neither the buyer nor the seller is at risk of fraud or financial loss.
Parties to escrow transactions can range from end users, like individuals or companies, to professional intermediaries like law firms and accounting firms. Escrow arrangements can also serve government agencies engaging in national infrastructure projects.
As an escrow provider, Sovereign’s escrow service team offers the following client benefits:
- Flexible – our escrow services can be tailored to meet the requirements of many different parties, situations and jurisdictions.
- Experienced professionals – escrow specialists across our Group legal, accounting and compliance teams enable us to draft arrangements, process documentation and conduct due diligence efficiently and rapidly.
- Effective – even in the most complex transactions, an escrow agreement will help make the transfer as smooth as possible.
- Secure – our escrow services ensure protection for all parties to a transaction.
Escrow fees: understanding costs and charges
Escrow fees are the charges associated with the services provided by an escrow service provider and are a critical component of many high-value deals.
In most cases, escrow fees are split between the buyer and seller, although the specific allocation may vary depending on local practices and negotiation.
Escrow fees are typically calculated based on a percentage of the total transaction amount. The percentage can vary depending on the complexity of the deal and the range of services provided by Sovereign.
Please get in contact if you have any further question regarding Sovereign’s escrow services.
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
