You just sold your startup, what is the connection between your escrow and tax withholding.
When a company undergoes an investment round, M&A, or secondary purchase, it is customary to find in the investment or purchase agreement an amount of the purchase price (between 5%-15% of the purchase price) that remains in escrow for a couple of years, to make sure the buyer has funds retained to cover unexpected or overlooked expenses related to pre-closing periods.
One of such expenses is under-withholding of tax from employees’ compensation (which includes not only base salary and bonuses, but it also includes other fringe benefits, stock or stock options). If you overlooked the withholding requirements in states you were required to withhold and pay, that escrowed amount may be gone, it may also require you to indemnify the buyer, if the amount of tax, interest, and penalties (SEE BLOG ON THAT) exceeds the amount that is in escrow, and you gave a representation that all taxes have been paid (SEE BLOG FOR THAT).