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Investing in Business

Can investor ask the company to pay investor’s legal fees?

Can investor ask the company to pay investor’s legal fees? 150 150 Jiang Hong Wilkin Business Law

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.

Should buyer and seller use the same lawyer?

Should buyer and seller use the same lawyer? 150 150 Jiang Hong Wilkin Business Law

The interests of both parties in a transaction are in conflict. A lawyer cannot represent both parties. A lawyer serves his/her client and protects his/her client’s interests. If there is a conflict of interest, a lawyer cannot protect both parties’ interests. What is a conflict of interest? It is where you win and I lose, or your gain and my loss. For example, in a purchase transaction, the seller wants the selling price as high as possible, but the buyer wants the selling prices as low as possible; the seller wants the representations in the contract as little as possible, but the buyer would like the seller to make more representations. Therefore, the interests of the seller and the buyer are in conflict. If they retain the same lawyer, it will be easy to have problems. The conflict of interest will be more complicated if there are multiple parties in a transaction. For example, a company is negotiating with its lender to enforce the mortgage. My client is the guarantor. The interests of the borrower and the lender are in conflict (the lender would like to have the loan paid back as much as possible; but the borrower wants the payback as little as possible). If the borrower’s lawyer think that interests of the borrower and the guarantor are in conflict. It may not be correct. The interests of borrower and the guarantor are the same regarding the pay-off of the mortgage (they both would like to pay as little as possible). There is therefore no conflict of interest at this point. If the guarantor requires the borrower to compensate the paid-off amount, there will be a conflict of interest between them at that time.


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