An escrow account is a third-party held account holding funds or other assets pending the satisfaction of defined conditions. Typically at a bank or escrow company, it is used in venture financings (rarely, typically for specific contingencies), M&A transactions (commonly, to secure rep-and-warranty obligations or earnout payments), and other commercial transactions where one party needs assurance that funds will be released only on defined terms. It is the structural mechanism for handling conditional payments and post-close obligations.
The standard structure:
Account creation: third-party escrow agent (typically a bank) opens an account.
Funding: party with funds wires them to escrow account.
Hold conditions: escrow a...