Generally, the buyer pays merger consideration, withholds taxes and completes tax reporting as required. In many deals, buyers hire paying agents to facilitate these processes. Paying agents will act as an exchange agent, verify ownership, collect shareholder payment instructions, and receive W-9 or W-8 tax forms.
Issues can arise when the parties decide to use an escrow agent that is not the paying agent, or they establish accounts with different divisions of the same bank. The escrow banking relationship is a separate legal relationship from the paying agent relationship – even when the same bank is performing both roles. The paying agent agreement is typically only between the buyer and the bank. The escrow relationship is a three-way relationship between the buyer, the shareholder representative and the bank. For customers’ security, banks do not share information between accounts. Because of this, escrow agents often need to re-collect payment instructions from each shareholder and also independently gather tax forms. In cases where the escrow agent isn’t the exchange agent, it could be unsure if all shareholders have submitted their share certificates and letters of transmittal to participate in the M&A transaction. Having to re-verify and re-collect this information may delay payments.
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Posted in: Clients: Escrow Accounts