Individual Attorneys vs. Neutral Transaction Attorney

When it comes to selling or buying a business, the legal side of the transaction is critical. Mistakes in deal structure, ambiguous contract language, or overlooked liabilities can cost tens of thousands of dollars—or even sink the deal entirely. One of the key decisions that buyers and sellers must make early in the process is how to handle legal representation: should each party hire their own attorney, or can both parties rely on a single, neutral transaction attorney to prepare the necessary documents?

This article explores both approaches, including the associated costs, benefits, and limitations, to help business owners and buyers make an informed decision based on the nature of the transaction.

 

Option 1: Each Party Retains Their Own Attorney

This is the traditional and most common approach in business transactions. The buyer and seller each hire their own attorney to represent their specific interests during the negotiation, due diligence, and closing phases.

 

What Independent Attorneys Do:

• Buyer’s Attorney:
  • Conducts legal due diligence (corporate filings, contracts, liabilities)
  • Drafts or reviews the Purchase Agreements
  • Ensures representations and warranties protect the buyer
  • Prepares indemnification clauses
  • Drafts and/or Reviews the Bill of Sale, Non-Compete Agreement, Corporate Resolutions, Lease Assignment, etc.
  • May assist with SBA loan documentation, if applicable
  • Negotiates with the Seller’s attorney

 

• Seller’s Attorney:
  • Reviews and negotiates Purchase Agreement terms, especially representations and warranties
  • Works to minimize seller liability post-sale
  • Ensures any outstanding liens or debts are addressed
  • Reviews and negotiates the Non-Compete and any seller-financing terms
  • Prepares lien releases, corporate resolutions, and closing documents
  • Negotiates with the Buyer’s attorney

 

Cost of Independent Legal Representation:

• Buyer’s Attorney Fees: $15,000–$33,000 (average ~$21,000)
• Seller’s Attorney Fees: $8,000–$24,000 (average ~$12,000)
• Total Combined Cost: Typically, between $23,000–$57,000

Factors that impact cost include:

• Geographic location (attorneys in major cities charge more)
• Business complexity (regulated industries, real estate, intellectual property)
• Volume of negotiation (especially around indemnities or post-closing obligations)

 

Benefits of Using Independent Attorneys:

1. Individual Representation: Each party has a legal advocate solely focused on their interests.
2. Risk Mitigation: Attorneys can negotiate specific clauses to protect their client from liability, tax surprises, or payment default.
3. Complex Deals: Suited for deals involving earnouts, rollovers, equity, or multiple entities.
4. Negotiation Power: Each side has leverage to shape terms rather than accepting a “middle ground.”

 

Limitations:

• Higher Costs: Legal bills can escalate rapidly, particularly if the deal prolongs or negotiations become contentious.
• Longer Timeline: With two attorneys reviewing, revising, and negotiating documents, the entire process can slow down.
• Adversarial Tone: If attorneys are overly aggressive, the transaction can become needlessly combative, reducing goodwill and trust. Increases the risk that the transaction will not close.

 

Option 2: Hiring a Neutral Transaction Attorney

Some buyers and sellers opt to hire a single attorney – acting as an intermediary transaction attorney, to prepare the closing documents. This attorney doesn’t represent either party specifically but instead acts as a neutral drafter to memorialize the deal terms that have already been agreed upon.

This approach is more common in transactions under $5 million, where both parties are motivated to keep costs down and the deal is relatively straightforward.

 

What an Intermediary Transaction Attorney Does:

• Drafts a neutral Purchase Agreement based on deal terms provided by the buyer and seller
• Drafts a balanced Contract of Sale if real estate is included
• Prepares the Bill of Sale, Non-Compete Agreement, Assignment of Lease, Corporate Resolutions, Promissory Note, and Closing Settlement Statement
• Coordinates the signing and closing process for both the transaction and the loan
• Acts as escrow agent for the transfer of funds
• Will perform lien searches to help ensure the assets are sold free and clear
• Will work with the seller to obtain lien releases
• Will disburse funds, including lien payoffs
• If real estate is included in the transaction, they will also handle real estate title work
• Normally, will handle the bank loan closing at the same time
• Will assist with SBA loan documentation, if applicable

 

Typical Cost of a Transaction Attorney:

• Flat Fee Range: $4,000–$7,500
• Average Cost: ~$5,000
• This cost is usually split between the buyer and the seller.

 

Benefits of Using a Transaction Attorney:

1. Lower Total Cost: The flat-fee model typically saves each party thousands of dollars compared to hiring separate attorneys.
2. Faster Process: With one attorney drafting documents, there’s less back-and-forth and fewer delays.
3. Non-Adversarial: Reduces the chance of the deal becoming contentious, helping maintain goodwill between parties.

 

Limitations:

• No Legal Advice: The transaction attorney cannot protect either party’s interests or negotiate on their behalf.
• Negotiations: The transaction attorney does not negotiate on behalf of either party or provide legal advice to either side.
• Potential Imbalance: If one party is more experienced or assertive, the final terms may favor that side without adequate pushback.
• Not Suitable for Complex Transactions: Deals involving significant intellectual property, large liabilities, or earnouts are generally too risky for a single neutral attorney approach.
• Risk of Legal Gaps: Since neither side receives individualized legal counsel, there is a greater risk that a term will be poorly drafted, misinterpreted, or unenforceable.

 

Hybrid Option: Transaction Attorney + Light Review

A compromise some parties choose is to use a neutral transaction attorney to prepare all the documents and then have their own attorney do a brief review. This can cost:

• $1,000–$3,000 per party for review and comments
• Total legal costs might then come to $7,000–$9,000 combined, still lower than hiring two independent attorneys from the outset.

This hybrid approach combines the cost-efficiency of a single drafter with the risk mitigation of individual oversight.

 

Final Thoughts

Choosing the right legal approach for your transaction depends largely on the deal size, complexity, and relationship between the buyer and seller. While using two independent attorneys ensures each party is fully protected, the cost and potential for friction may not be justified for every deal. Conversely, a single transaction attorney offers a faster and cheaper solution, but comes with the tradeoff of no legal advocacy.

If the transaction is under $5 million, relatively simple, and the buyer and seller are cooperative, hiring a neutral transaction attorney can be a smart move. For larger deals, or when the stakes are high, it’s almost always worth the investment to have your own attorney review and negotiate the fine print.

At Gateway Mergers & Acquisitions, we work with both legal models and assist to guide our clients to the option that best balances cost, risk, and efficiency.

If you’re considering selling or buying a business and want help deciding which route is best, contact us today for a confidential consultation or give us a call at (972) 219-6961.