Can investor ask the company to pay investor’s legal fees?
In Canada, an investor needs to retain a lawyer to review legal documents, conduct due diligence, close the transaction, etc. Who will pay the investor’s legal fees? If the investment funds go to a company, the company will pay lawyer’s fees in most cases. Especially if the investor is a finance business and the investment is a loan, the borrower will pay the lender’s legal fees. If the money is paid to shareholders, rather than to the company (the investor buys the issued shares from the existing shareholders), the investor’s legal fees are usually paid by the investor. Even if the company agrees to pay the investor’s legal fees, the company typically worries if the investor’s legal fees would become high. The company, therefore, will normally require a cap for investor’s legal fees. How much the cap is depends on the negotiation. The arrangement on legal fees should be included in the letter of intent. Some investors want to save money and do not retain lawyers before signing the letter of intent. But these investors do not know the common practice in Canada on legal fees. Accordingly, all legal fees are borne by investors themselves.