Can The Buyer And Seller Of A Small Business Use The Same Conveyancing Lawyer?
To answer this question, first let us analyse what the buyer and seller of the small business must establish, prior to the settlement date.
The Buyer Side
In order to buy a business, the buyer has some preliminary work to do. This “preliminary work” may be grouped into three points:
Probably this is the most important of the three. The business, be it small or big, is a living entity. If the buyer is considering a purchase of the business, it is important to analyse, and even feel whether there is a fit between the two of them. Does the buyer have the qualities, knowledge, skills, and time to run and grow the business?
Then comes the analysis of the enterprise in question. It sounds reasonable that this business has some additional value, which the buyer recognises, which makes it better than starting the same business anew on a green field. This value, of course, needs to be checked. How big is the client base? Are the clients coming back? What is the potential market for the product or service? Is the credit rating of the business any good, and will the bank easily finance future projects?
Hopefully, there are none, but … this of course needs to be checked. What are the current active contracts? Will the current staff (if any) be willing to work for the buyer? Are they any good? Are the assets of the company-owned, or leased? Are there any pending liabilities? Are there any immediate investments needed to grow the business?
These checks and the answers to all these questions (and many more) are normally done in a due diligence check of the business entity.
Now let’s look at the other side of the transaction:
The Seller Side
The interests of the seller are quite normal, opposite those of the buyer. The seller would like to exaggerate the client base. Extend the potential for future growth. Possibly even overstate asset value and understate liabilities. The buyer has an interest (we are not suggesting that all buyers will do that) to subdue any information which may hinder the deal.
Checks are necessary not only for the buyer. The seller too needs to check the potential buyer. Does she have a good reputation and credit rating? Will her bank support the deal? Will the buyer grow the small business, or is the deal rather a way to buy and destroy a competitor?
Obviously, the side of the buyer and seller have contradicting interests. Further, they both need some checks to be made and some documents to be drafted. This is exactly where the figures of the conveyancing lawyers come in.
We are using the plural, as usually, both sides will bring to the table their own conveyancing lawyer as part of their team. It is here that we can actually grasp the answer to the question: Can the buyer and seller of a small business use the same conveyancing lawyer?
The short answer is: “Yes they could, but it would be unreasonable”.
Here is the reasoning.
To begin with, the conveyancing lawyer of the buyer will be the one leading the due diligence. Then the conveyancing lawyer of the buyer has to disclose any discrepancies with the books, or with the business, or with the ownership, or with the potential for growth, or what have you, which he has established, to the buyer. And it is his duty to suggest a decrease of the price, or withdrawal from the deal altogether.
How could he possibly be engaged by the seller at the same time?
The interests of the seller are in full contradiction with the interests of the buyer. Any discrepancies need to be dwarfed or forgotten altogether. Issues with ownership should be subdued. The price of the deal needs to be increased as the business prospects are great, and it will be small for only a few months more.
It is impossible for a single person to handle both at the same time.
Provide Information And Advice
Further to leading the due diligence, checking ownership, talking with the banks, analysing markets, and so on, the conveyancing lawyer for both the buyer and the seller need to disclose all information gathered and based on it to provide sound advice on the potential purchase of the small business in question.
Actually, it is the duty of the conveyancing lawyer to provide advice to the party he serves. Quite obviously a single person cannot accomplish both jobs at the same time. He cannot provide sound advice to two sides with contradictory, and possibly even conflicting, interests.
Conflict Of Interest
Well, we just said it. Not only is it not reasonable, but it is immoral and unlawful for a lawyer of whatever employment to have a conflict of interest with the party which employs him. If for some reason a conveyancing lawyer is really employed by the two sides of the deal for selling a small business, the first document, which he will have both the buyer and seller sign would be a waiver for his conflict of interest. Signing such a waiver, however, will decrease the added value which the conveyancing lawyer brings to the deal – all the checks need not be done, any issues will not be disclosed and all advice will obviously be regarded as biased, hence irrelevant. Employing a single conveyancing lawyer by both sides of buying a small business actually will transform this important job into simple secretarial work (with all due respect to secretaries).
Who Does It Then?
We now know that it is impossible for a single person to act as a conveyancing lawyer for the side of the buyer and seller of a small business simultaneously. Although seldom done, it is a fact that such instances do happen. So, who does them and why? Is this reasonable (having in mind all said above)?
The answer is again short: These things happen to save some money.law
Obviously, if only one conveyancing lawyer is employed in a given transaction, instead of two, the compensation for conveyancing services will be about half.
Here is an example:
Say the “buyer” is the grandson, and the “seller” is the grandmother. Grandpa sadly passed away a few years back and grandma can no longer manage the small business in Melbourne by herself. The price will be just the price of the assets, to help grandma survive on her own. The grandson checked the fees for property conveyancing in Melbourne. Then he decided that conveyancing in Melbourne is not that difficult and decided to reduce half of the expense for conveyancing lawyers in Melbourne and pass with only one such individual – just get the paperwork done. It seems like a no-brainer. All is set. Where do we sign?
While some such transactions may happen without issues, it is worth remembering the checks made by the conveyancing lawyers. Being the devil’s advocate in our example, consider that grandpa has mortgaged the shop which houses the business, but forgot to mention this to grandma. Then again, imagine that grandpa passed away with a stroke, exactly when he learned that a giant competitor shop was opening next door.
The truth is that each job brings value to our economy, and losing one of the two drivers of a train may get that train derailed.
Our advice: stick with the standard and have one conveyancing lawyer for each side in a transaction.