Canadian Securities Course (CSC) Practice Exam

What benefit is derived from using an escrow arrangement for shares?

1. Maximizing shareholder profits

2. Ensuring rapid liquidation of shares

3. Preventing premature share sales

4. Eliminating the need for shareholder meetings

The correct answer is: Preventing premature share sales

An escrow arrangement for shares is a legal agreement in which shares of stock are held by a third party on behalf of two other parties, typically in a merger or acquisition scenario. This ensures that the shares will not be sold prematurely or without proper authorization, protecting both parties from potential disputes or scams. Option A is incorrect because an escrow arrangement does not directly maximize profits for shareholders. Option B is incorrect because the arrangement does not necessarily guarantee rapid liquidation of shares. Option D is incorrect because shareholder meetings may still be necessary for other matters unrelated to the escrow arrangement.