Legal Q&A · Company sale & M&A

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

Law as at 29 August 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.

Czech transactions follow Czech Bar rules

We also handle escrow in Czech transactions. The principle is the same, but the rules are more formal. Under Czech Bar Association rules, the lawyer enters into a written escrow agreement and receives funds exclusively by non-cash payment into a separate escrow account. Cash deposits and withdrawals are excluded. Only one escrow is maintained per account, and each escrow is reported in advance to the electronic escrow register kept by the Bar. The bank also confirms to both the depositor and beneficiary that it maintains the escrow account and informs them of account movements, 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 29 August 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. Is VAT payable on the sale of an enterprise or part of one? Generally not. The sale of an enterprise, or part forming an independent organisational unit, is not treated as a supply of goods or services if the buyer is a VAT payer or becomes one by law. However, the buyer becomes the seller's legal successor for the assets transferred. If the seller does not provide information about VAT deducted on capital goods, the Act presumes a full deduction.
  2. Does a new company created by a merger pay minimum tax in its first year? Yes. The minimum tax exemption for a newly formed taxpayer expressly excludes a taxpayer that is the legal successor of one dissolved without liquidation. A successor company created by a merger into a new company or a division therefore pays minimum tax for the period covered by its first tax return. For a period shorter than twelve months, the amount is calculated proportionately.
  3. A company that owns real estate has been deleted from the Commercial Register. Can anything still be done? Yes, but only through the court. If assets that should have been dealt with in liquidation or bankruptcy are discovered after a company is deleted without a legal successor, the court, on an application by a person with a legal interest, orders supplementary liquidation, appoints a liquidator and restores the company's Commercial Register entry. Timing matters: if nobody applies within four years of deletion, the company's assets pass into state ownership.
  4. 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.

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

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