Legal Q&A · Company sale & M&A

How does lawyer escrow protect the purchase price when a company is sold?

Law as at 26 September 2026

Answered by , Czech and Slovak attorney, admitted to the Slovak and Czech Bars (SAK 300422 · ČAK 19654).

Short answer

The buyer deposits the purchase price in a separate account held by the lawyer, and the seller receives it only once the agreed conditions are met, usually after the change of member is entered in the Commercial Register. Escrow money is separate from the lawyer's assets. The lawyer may not use it and is professionally obliged to release it to the entitled person. Release conditions should be drafted so they can be verified by documents, rather than interpretation.

A company sale creates the same stand-off as a property sale: the buyer does not want to pay before becoming a member, and the seller does not want to hand over the company before seeing the money. Lawyer escrow bridges that gap. The purchase price waits with the lawyer and is released only once the conditions agreed in advance by the parties are met.

The mechanism in five steps

For an ownership interest transfer, a typical escrow works as follows:

  1. The parties sign the ownership interest transfer agreement and a three-party escrow agreement. The lawyer also authorises the transfer agreement: since 17 August 2026, lawyer authorisation or a notarial deed has been the mandatory form (Act No. 29/2026 Coll.).
  2. The buyer deposits the purchase price in a separate escrow account.
  3. An application is submitted to register the change of member in the Commercial Register.
  4. Following registration, the lawyer releases the purchase price to the seller on the basis of a register extract.
  5. If registration fails and cannot be remedied, the money is returned to the buyer.

Part of the price may remain in escrow longer, as a holdback for representations and warranties or as an additional payment linked to financial performance. We summarise the transfer procedure, including the new form of agreement, in how to transfer an ownership interest in an s. r. o..

Escrow money does not belong to the lawyer

Funds held for a designated purpose are separate from the lawyer’s assets and are subject to strict professional rules. The Slovak Bar’s professional code requires complete and accurate records of funds received and a clear distinction between the money of the client and of other persons (Section 11(1)). Assets received must be accounted for and released within 30 calendar days of receipt unless otherwise agreed with the client (Section 11(3)). In escrow, that agreement is precisely the escrow agreement with its release conditions. Above all:

A lawyer must not use money of a client or third party that is held for a designated purpose to satisfy a claim for legal fees, reimbursement of out-of-pocket expenses or compensation for time lost. The lawyer must transfer it to the entitled person without delay.

— Section 11(2) of the Slovak Bar Association’s professional code, approved by the Conference of Lawyers on 6 June 2025 (unofficial English translation)

The lawyer is liable for damage caused in legal practice and carries insurance for this purpose. Breaches of the rules on handling client money are addressed by the Bar in disciplinary proceedings.

Make release conditions verifiable from documents

The most important part of an escrow agreement is the list of documents against which the lawyer releases the money. For an ownership interest transfer, the basic document is a Commercial Register extract showing the new member; for shares, it is confirmation of the entry in the relevant securities records. A condition such as ‘after proper performance of the agreement’ is poor drafting: it cannot be verified by a document and puts the lawyer in the position of an adjudicator. The agreement should also expressly address failure: how long to wait for registration, when the money returns to the buyer, and who is entitled to interest and bears fees. If payment is staged, with part at signing, part after registration and a holdback after the warranty period, each tranche needs its own condition and deadline.

Cash has no place in escrow. The purchase price is deposited by bank transfer; Act No. 394/2012 Coll. generally prohibits cash payments exceeding EUR 5,000.

We also handle escrow in Czech transactions, again using a separate escrow account. The principle is the same, but the rules are more formal. Since 1 April 2025, their core has been set out directly in the Czech Legal Profession Act (Sections 52g to 52k of Act No. 85/1996 Sb.), with further details in Czech Bar Association rules. The lawyer enters into a written escrow agreement and may receive the funds only into a separate escrow account with a bank. The lawyer may not deposit cash into it, and the bank will not allow cash withdrawals from it. Only one escrow is maintained per account, and after receiving the funds the lawyer records the escrow without undue delay in the electronic escrow register kept by the Bar. The bank also confirms to both the depositor and the beneficiary that it maintains the escrow account and sends them confirmations of transfers from it, allowing them to monitor the money independently of the lawyer.

How we can help

We prepare purchase price escrow as part of a company sale or purchase or a standalone ownership interest transfer. Authorisation of agreements by a lawyer addresses the mandatory form. If you are still structuring the transaction, contact us before signing. Escrow conditions are easiest to design while the agreement’s payment mechanism can still be changed.

This answer provides general information on the law as at 26 September 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.

More legal questions

All questions and answers
  1. We are merging companies. Is the property automatically registered in the successor's name? Ownership passes automatically, but the land register entry does not change automatically. On the effective date of a merger, meaning the date the transformation is entered in the Commercial Register, the disappearing company's entire assets and liabilities pass to the successor by law. The land register does not learn of this itself and makes no automatic amendment. The change must be pursued through a separate application for a declaratory entry. Until then, the title deed names a company that no longer exists.
  2. We are buying property from a joint-stock company. What additional checks are needed? In addition to ordinary property due diligence, check whether the transfer falls under a special Commercial Code regime. If a joint-stock company transfers assets to a board member, a procuration holder, another person authorised to act for it or persons close to them, prior supervisory board consent is required. Conversely, if the company acquires assets from a founder or member for at least 10% of its registered capital, an expert valuation and filing of the agreement in the Collection of Deeds are required before the land registration application is submitted.
  3. We are selling one division of the company. When is this a sale of part of an enterprise and when merely a sale of assets? It depends on whether the division forms an independent organisational unit, that is, a self-contained, separately managed part of the enterprise carrying on a relatively independent activity. If it does, it is sold by a contract for the sale of part of an enterprise and the rights and obligations belonging to it pass to the buyer by operation of law, in the case of debts even without the creditors’ consent, although the seller continues to act as surety for them. If it does not, the regime for the sale of part of an enterprise does not apply and the assets, contracts, receivables and debts must be transferred separately.
  4. We are selling part of the company. Do the employees pass to the buyer automatically? Yes. Where a part of the employer that retains its identity is transferred, the rights and obligations under the employment relationships pass to the buyer by operation of law and the employees do not sign new employment contracts. Both the seller and the buyer must inform the employees’ representatives, or the employees directly, in writing in advance, in Slovakia at the latest one month before the transfer. The same principle applies in the Czech Republic, with an information period of 30 days; an employee who gives notice because of the transfer within 15 days of being informed in time ends the employment no later than the day before the transfer.

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Mgr. Patrik Tulinský, LL.M. Czech and Slovak attorney · SAK 300422 · ČAK 19654

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