Meaning
Legal instruments facilitate the temporary retention of stock certificates by a neutral agent to ensure compliance with performance targets or indemnity obligations. A share escrow agreement is often used in mergers to provide a source of funds for potential warranty claims. The shares are locked away and cannot be traded until the period specified in the document expires.
Release Condition
Shares are distributed to the designated party only when certain events occur, such as the achievement of revenue milestones.
Voting Right
While the shares are held in the account, the agreement must specify who has the authority to vote them. In many cases, the share escrow agreement allows the beneficial owner to exercise voting rights even though they do not have physical possession of the certificates. This ensures that the governance of the company is not disrupted by the escrow arrangement.
Dispute Resolution
If a conflict arises regarding the fulfillment of the conditions, the escrow agent will hold the assets until a joint instruction or a court order is received. The share escrow agreement protects the agent from liability as long as they follow the instructions provided in the contract. This neutrality is the reason why banks or specialized firms are chosen for this role.
