Can One Lawyer Act for Both Buyer and Seller of a Business in Nova Scotia?

If you and the other party already know and trust each other, hiring one lawyer to paper the deal can look like a sensible way to save time and effort. Many people in small business sales ask about it.

The difficulty is that a lawyer owes loyalty to a client, and a buyer and seller are on opposite sides of the transaction. This article explains why that creates a conflict of interest concern, how a lawyer will approach the question, and what alternatives protect you both.

This article covers the law of Nova Scotia.

What a conflict of interest means here

A conflict of interest arises when a lawyer's duty to one client could be at odds with their duty to another, or when advising one person well would mean working against the other. Lawyers in Nova Scotia are governed by professional conduct rules, and they must decide for themselves whether they can properly act. A lawyer may refuse to act for both sides even if you both ask.

A friendly relationship does not remove the issue. Most disagreements in a business sale come up late, after closing, when a problem appears and each side looks to the lawyer for help but the lawyer cannot take one side against the other.

Where buyer and seller interests pull apart

Even in a cooperative deal, the two sides have different goals. Some examples from the tax and structure side:

• Price allocation: in an asset purchase, the buyer allocates the price among the assets, and that sets the buyer's cost base for each asset. The seller may face recapture or a terminal loss of capital cost allowance on depreciable assets, so the allocation has tax effects for both sides.
• Share sale or asset sale: a capital gains deduction may be available to a seller on a sale of qualified small business corporation shares, which is a reason sellers often prefer a share sale, while asset sales by a corporation do not get this deduction at the corporate level.
• GST/HST election: the buyer and seller may jointly elect so that no GST/HST is payable on the sale of a business, but only where the buyer acquires all or substantially all of the property needed to carry on the business. The election cannot be used if the seller is a registrant and the buyer is not.
• Risk after closing: the buyer wants strong promises and protection against hidden problems, while the seller wants a clean exit with limited exposure.

On each of these points, advice that helps one party can cost the other. That is the core reason a single lawyer has difficulty giving full advice to both.

When joint representation might be considered

Whether one lawyer can act for both sides depends on the lawyer's professional obligations and the facts. It is more likely to be discussed where the deal is very simple, the terms are already fully agreed, and both sides understand the risks. Even then, the lawyer must be satisfied that they can act fairly for each person, and may need both of you to understand and agree to the arrangement.

If the deal involves negotiation over price, tax structure, warranties or the allocation of assets, a joint retainer becomes much harder to justify. Ask any lawyer you approach directly how they would handle a disagreement between you, and what happens to the file if one arises.

Safer alternatives that still save effort

• Separate lawyers for each side. Each person gets advice focused on their own interests, and the lawyers usually work together to keep costs and delay down.
• One lawyer acts for one party only, and the other party gets independent legal advice before signing. The second lawyer explains the documents and the risks to that person.
• Agree key terms first, such as price and timing, in a short written outline, then let each lawyer handle the details.
• Use an accountant for the shared tax and valuation questions, since both sides need accurate figures.

Independent advice matters most for the party who is not the lawyer's client. A person who signs without it may later find it hard to say they understood what they agreed to.

What to do next

• List the points you and the other party have not yet agreed on.
• Decide whether each of you will hire your own lawyer or whether one side will take independent legal advice.
• Ask the lawyer in writing what they can and cannot do for each of you.
• Have an accountant review price allocation and the structure, because it affects both sides.
• Do not sign closing documents until you have received advice that is only for you.

Frequently asked questions