A holdback in a business transaction involves withholding a portion of the purchase price for a specified period (often-times 1 year). This is typically to cover potential liabilities or unforeseen issues that may arise after the deal is completed.

The withheld amount, often held in escrow, serves as a form of insurance, ensuring that the buyer has recourse if post-closing concerns emerge, such as undisclosed liabilities or breaches of representations and warranties by the seller.

Holdbacks provide a financial safeguard for the buyer, encouraging the seller to address any outstanding issues promptly and protect the buyer from unexpected financial risks associated with the acquired business.