Holdback
A holdback is part of the purchase price kept in escrow after closing to cover claims if the seller's representations about the business prove untrue
A holdback, sometimes called an escrow, is a portion of the purchase price that is not paid to the seller at closing but held by a lawyer or escrow agent for a defined period. If the buyer discovers after closing that a representation or warranty in the purchase agreement was untrue, such as undisclosed liabilities or misstated earnings, the buyer can claim against the holdback instead of suing the seller.
Holdbacks are common in BC deals, especially share sales where the buyer inherits the company's history, and in any deal where diligence raised questions that could not be fully resolved. They give the buyer practical protection and give the seller a cap on the amount at immediate risk. The length of the holdback usually relates to how long it would take problems to surface, with tax matters often treated separately.
The amount, the period, the release conditions and the claims process are negotiated as part of the deal structure and drafted by the lawyers. We advise on the commercial terms: how large a holdback is reasonable for the risk, whether a specific indemnity would serve better than a general holdback and how it interacts with any earn-out or vendor take-back. Sellers should treat the holdback as money they will probably receive, not money they have.
Start with a confidential conversation.
Tell Ali where the business is and what you want to happen next. You leave with a straight read on value, timing and the two or three moves that matter, whether or not we work together.