Who Pays The Professional Fees in Sale of an Arizona Business?

As a Phoenix corporate and business lawyer, every so often I’m asked by clients new to the process of buying a business or selling a business which side will pay for the professional fees for the attorney, accountant, appraiser, and other services that are often essential to the transaction.

The Attorney response every client hates

These clients are usually disappointed when I give them that most lawyerly of all answers:  “It depends.”  This is because there is no set rule or law that requires one party to a business sale or merger or the other to pay for the lawyer or accounting fees.  As with the terms of most private, business-to-business agreements, things are pretty free form and up to the contracting parties themselves to decide.

However, in my experience as attorney to both Arizona and out-of-state investors and sellers of businesses, the custom is for each side to “bear their own” costs of their own professional advisors to the deal.  In fact, most term sheets and definitive agreements that put the deal into actual, written form will usually have a provision or two that spells this out.

However, as with most things in life, it is a matter of negotiation, and the outcome of any negotiation often depends on the relative bargaining strength or bargaining position of the two (or more) sides.  For example, in an acquisition, the buyer could really, really want the target, while the target might be unmotivated to sell.  In such instance, although it would be unusual, the buyer could actually offer to cover the costs of the target’s legal fees in the deal.

Conclusion:  Everything’s negotiable

The bottom line is when it comes to which party will be responsible for the legal and other professional fees in a deal,  it is up to the horse trading between the parties or their representatives.   If both sides intend to bear their own costs, however, it should be spelled out in any definitive agreement.

However, if the payment of professional service fees is important to one party or another, I recommend raising this as part of discussions earlier, rather than later on in the process, (preferably through a term sheet or letter of intent).   The idea being that if the other side is not going to agree on a key business deal point, it is better to know it up front than in the middle of the third revision to the purchase agreement so as to save time and attorney’s fees.

If you are in the process of or anticipate acquiring, selling, or merging with an existing business, we do not recommend going it alone but hiring experienced legal counsel to represent your interests and navigate potential pitfalls.  Our law firm has represented buyers, sellers, and strategic partners in everything from the negotiation of the initial offer and drafting of definitive agreement through closing and enforcement of the parties’ post-closing obligations.  Even an initial consultation with qualified counsel early on in the process can help a buyer or seller identify blindspots and issues of concern, as well as developing possible solutions, before too much time or money is wasted.

Ben Bhandhusavee is the Managing Attorney for BhandLaw, PLLC, a Phoenix business and technology law firm working with start-up companies, creative intellectual property matters, and complex corporate M&A and technology transactions.  Ben can be reached at (602) 678-2970 or by e-mail at bbhand@bhandlaw.com