Law practice due diligence

A law practice has almost no hard assets to inspect — its value sits in client files, trust obligations and professional standing, which means diligence is fundamentally about verifying paper and relationships rather than physical inventory. The findings that actually derail law practice deals cluster around a small number of specific issues, and a buyer who checks each of them directly is in a very different position than one relying on the seller’s own summary.

Trust-account reconciliation is not optional

The firm’s trust account holds client money, not the firm’s own money, and in most provinces it must be reconciled and reported to the law society as part of any change of ownership or wind-down. Confirm directly, rather than through the seller’s assurance, that the trust account is currently reconciled, that no discrepancy is outstanding, and that the reporting step the law society requires has actually been scheduled. A trust-account problem discovered after closing is not a minor administrative gap — it is the kind of finding that follows the practice, and potentially the buyer, directly.

Confirm the firm’s own professional-liability insurance history

Ask for the practice’s claims history under its professional-liability policy directly, including any claim made, reserved or settled in past years, and confirm the current policy is in good standing with premiums paid to date. A gap in coverage, even a brief one, can leave both the practice and a buyer exposed to a claim tied to work performed during the gap, and this is a detail worth confirming with the insurer or broker directly rather than relying solely on the seller’s file.

Open litigation files need a continuity plan, not a blanket handover

Every open file with a limitation period or a scheduled hearing date needs an explicit plan for who is responsible for it through and after the transition, because client files transfer only with each client’s informed consent — they do not move automatically the way a piece of equipment would. Review the open-file list specifically for approaching deadlines, and confirm the seller has a realistic plan, not just an intention, for keeping every one of them covered without a gap.

Confirm standing with the law society directly

Ask the relevant provincial law society directly, rather than relying on the seller, whether the practice or any lawyer at it has an open or past disciplinary matter, and confirm the practice’s standing is current. Law societies maintain their own records independent of what a seller chooses to disclose, and a disciplinary matter that surfaces after closing rather than before becomes the buyer’s problem to manage from a materially weaker position.

Conflict-of-interest exposure, checked file by file

A conflict-check system that looks adequate in a policy document can still miss an actual conflict buried in an older file, particularly in a smaller practice where informal client intake has been the norm for years. Review a sample of files across different practice areas specifically for conflict flags — related parties, overlapping corporate structures, prior representation of an opposing party — rather than accepting the firm’s conflict-check log at face value, since an undisclosed conflict discovered after you have taken over the file is a problem you inherit personally, not one you can trace back to the seller.

• Written confirmation from the law society of current standing and any disciplinary history
• Independent confirmation that the trust account is reconciled with no outstanding discrepancy
• A schedule of open litigation files with limitation periods or hearing dates and a continuity plan for each
• An honest accounting of contingency-fee files and how their eventual value is being estimated
• Professional-liability insurance history and any claims made, reserved or settled

Employment, lease and other obligations that transfer with the practice

Beyond client files, confirm what the practice is actually obligated to beyond its revenue-generating work — employment agreements and notice obligations for associates and staff, the office lease and whether it requires landlord consent to assign, any equipment or software licences tied to the current entity, and outstanding professional-liability insurance premiums or deductibles. None of these is unique to a law practice, but each one is easy to overlook when diligence focuses entirely on files and trust accounts, and any one of them can turn into an unpleasant surprise in the weeks after closing if it was not confirmed beforehand.

What a finding actually means once you have it

Not every finding should end a deal — a contingency file with genuinely uncertain value, or a referral relationship concentrated in one source, is common in this sector and can often be priced into the purchase through an adjustment or a holdback rather than treated as disqualifying. What matters is that each finding gets addressed explicitly in the purchase agreement, with the client-consent and continuity questions answered in writing, rather than assumed to work itself out after closing when the buyer has far less leverage to fix it.