The short answer. In an acquisition in El Salvador, escrow means the purchase price — or part of it — is held by a neutral third party and released only when the closing conditions in the contract are met.
There is no specific escrow statute. Escrow works as a contract, similar to the deposit contract in the Civil and Commercial Codes, and the holder can be a bank, a bank trust, a law firm’s client account or an independent escrow provider, as long as it is independent of both sides.
Why use escrow in an acquisition
Between signing and closing there is a gap. The buyer does not want to pay before the conditions are met; the seller does not want to hand over the company without knowing the money exists. Escrow closes that gap: the money is committed, but it cannot move until the contract says so.
It also protects the period after closing. Liabilities in a company do not always show up in due diligence, and a holdback in escrow gives the buyer a source of recovery that does not depend on chasing the seller.
What goes into escrow
- The purchase price at closing. Released when the closing conditions are met.
- A holdback. A part of the price kept for a set period after closing to cover contingencies that surface later, typically labour and tax.
- A deposit during exclusivity. Money that shows commitment while due diligence runs, with clear rules on who gets it if the deal falls through.
- Documents and shares. Share certificates, corporate books and signed instruments can be held too, and released at the same moment as the money.
Who can hold the money in El Salvador
According to a 2023 analysis by the LatinAlliance network, the holder in El Salvador is usually one of four, depending on the amount:
- A bank, through an escrow account.
- A bank trust (fideicomiso). Only banks and authorised institutions can act as fiduciary.
- A law firm, through its client account, under a written escrow agreement.
- An independent escrow provider, as long as it is a third party outside the main contract.
The requirement that matters is independence: whoever holds the money should have no interest in the outcome. That is why we work with Stratos Escrow, an independent escrow agent that, according to Stratos, is registered with El Salvador’s Financial Investigation Unit (UIF) as an obligated entity for anti-money-laundering purposes.
How the release conditions are written
The escrow is only as good as its conditions. Each one should say what has to be true, who confirms it, and what document proves it. Typical conditions in an acquisition include:
- The share transfer recorded in the company’s shareholder registry, and any registration the deal requires at the CNR, El Salvador’s national registry.
- Tax and social security obligations up to date, with the certificates that prove it.
- Required consents and approvals obtained: from partners, lenders, landlords or regulators.
- The resignation and appointment of directors, where control changes.
- For a holdback: the period, the claims it covers, and the procedure to make one.
Release happens against written instructions signed by the parties. The contract should also say what happens if a condition fails or the parties disagree: who decides, in what time, and where the money waits meanwhile.
Know your customer and the origin of the funds
Before an escrow account is opened, the escrow agent verifies both parties and the origin of the funds. Expect to provide incorporation documents, identification of shareholders and legal representatives, and documentation of where the money comes from. Foreign funds enter through the banking system, which applies its own review. Having this ready shortens the timeline more than anything else.
Timeline and cost
The timeline depends on the conditions, not on the escrow: the account can be ready once the parties pass the verification, and the money moves when the last condition is met. The escrow agent sets its fee. Ask for it in writing before signing, together with what it covers and who pays it — that last point is negotiable and belongs in the purchase agreement.
Checklist before you wire
- The escrow agent is independent of both sides and you have verified who it is.
- Every release condition names the document that proves it.
- The holdback has a period, a scope and a claims procedure.
- The contract says what happens if a condition fails.
- The fee is in writing, and so is who pays it.
- You have the escrow account details from the escrow agent itself, confirmed by phone — never only from an email.
Frequently asked
Is escrow legal in El Salvador?
Yes. There is no specific escrow statute: escrow works as a contract, similar to the deposit contract in the Civil and Commercial Codes, and it is common in company purchase and sale operations. What makes it work is that the party holding the money is independent of both sides.
Who can hold the escrow in El Salvador?
A bank through an escrow account, a bank trust (fideicomiso), a law firm through its client account, or an independent escrow provider, as long as it is a third party outside the main contract. Only banks and authorised institutions can act as fiduciary in a fideicomiso.
What is a holdback in an acquisition?
A part of the purchase price that stays in escrow after closing, for a set period, to cover liabilities that surface later, typically labour and tax contingencies. If nothing appears, it is released to the seller at the end of the period.
Who pays for the escrow?
It is negotiable and should be written into the purchase agreement. The escrow agent sets its fee; ask for it in writing before signing, together with what it covers.
Sources
- LatinAlliance, The escrow account – El Salvador (27 February 2023).
- Stratos Escrow, Corporate escrow and frequently asked questions.
- Stratos Escrow, regulatory compliance.
General information, not legal or tax advice. Every acquisition is structured with counsel admitted in El Salvador. Stratos is an independent company; A&M Capital does not hold transaction funds.