# Definition of Escrow?



## Eager (13 November 2011)

Typical newbie question lol.

One of the stocks that I hold regularly announces that it has released shares from escrow. That's a strange term for me, so a little digging revealed that it is all about a third party holding the shares until the money is paid. But I can't relate that to a real life situation. The company is small and still in a start-up phase (RFX) and it seems that some of the shares in the company are held for a certain period in escrow - but why?


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## pixel (13 November 2011)

Eager said:


> Typical newbie question lol.
> 
> One of the stocks that I hold regularly announces that it has released shares from escrow. That's a strange term for me, so a little digging revealed that it is all about a third party holding the shares until the money is paid. But I can't relate that to a real life situation. The company is small and still in a start-up phase (RFX) and it seems that some of the shares in the company are held for a certain period in escrow - but why?



 The founder and/or initial financier of a new company will often receive a number of shares as consideration. Those shares are usually placed in escrow, meaning they can't be sold for a number of years, until the company has established itself. This escrow has the purpose of discouraging the formation of shelf companies for no other purpose than feeding some freeloading "entrepreneurs". (I suppose there's no need to draw a picture? )


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## explod (13 November 2011)

I have in the past seen major sharholders announce they have put their holdings into escrow in an effort to garner faith in a project.

KRL was one of recent times where 40% of holdings were put into escrow for eighteen months.  This has since elapsed since another company came in and took up more than 50% of the Company.

Is used sometimes by dodgy operators to ramp up for trades outside the escrow.

It is an obligation not to sell a known quantity for a set period by an offical ASX announcement.   The legal obligations beyond that I dont' know.


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