Buying a Law Practice in Ontario: The Files Are the Deal

Last updated 12 September 2026. Written by Jatin Dua, Broker of Record at RE/MAX Quantum Realty, 799 The Queensway, Etobicoke · Commercial & business purchases · 13 min read

You are buying an introduction, not a client list

A law practice has no inventory that transfers by bill of sale. It has furniture, a phone number, a lease, receivables and work in progress, and client relationships that belong to the clients. Law Society guidance on closed files sets out the mechanism. Where a closed file contains documents belonging to a client, you must “deliver the documents to the client or to another licensee of the client’s choosing on their written direction, or continue to preserve the documents either personally or by transferring them to another licensee who is taking over your practice, if applicable.” On active matters the outgoing licensee must “obtain instructions from the client or the court/tribunal, if required, regarding the return or transfer of client property, including any remaining trust funds,” confirm receipt, and prepare “detailed transfer memos for licensees taking over a file.”

Read that as a buyer. The vendor cannot hand you the clients, only introduce you. Whether they stay is decided one file at a time, and every dollar allocated to goodwill is a bet on it. How to protect that bet in the agreement is your lawyer’s question, not mine.

Who is allowed to own an Ontario law practice

The Law Society Act defines a “firm” to include a sole proprietorship owned by one licensee, a professional corporation, an association of licensees, an ordinary partnership and a limited liability partnership. Ownership is closed to non-licensees. Section 61.0.4 requires that “all of the issued and outstanding shares of a professional corporation described in clause (1)(a) shall be legally and beneficially owned, directly or indirectly, by one or more persons who are licensed to practise law in Ontario.” The articles must provide that it carries on no business other than practising law or providing legal services, though it may invest surplus funds it has earned.

The Business Corporations Act adds more. All officers and directors must be shareholders. The name must include “Professional Corporation” or “société professionnelle,” and cannot be a number name. A proxy or agreement vesting the right to vote a share in a non-shareholder is void, and a unanimous shareholder agreement is void “unless each shareholder of the corporation is a member of the professional corporation.” If you planned to fund a lawyer’s acquisition in exchange for voting control, the legislation has already answered you.

The certificate does not transfer, and the vendor’s corporation cannot quietly disappear

Name the document, because buyers often cannot. It is a certificate of authorization, “authorizing the corporation named in it to practise law in Ontario, to provide legal services in Ontario or to do both.” No corporation may practise law without one, or “except to the extent permitted by the corporation’s certificate of authorization.” By-Law 7 sets out how a corporation applies. It contains no assignment provision and no purchaser’s application.

Three consequences. A change of shareholders is notifiable: By-Law 7 requires written notice immediately after any change in the information provided on the application or renewal. Revocation history follows people: the Society may refuse a certificate where “a director, officer or shareholder of the corporation is or has been a director, officer or shareholder of a corporation whose certificate of authorization has been revoked,” on renewal as well as on first issue. That is a diligence question about the people, not the balance sheet. And restrictions imposed on a person practising through the corporation apply to the corporation’s certificate.

The vendor also cannot simply fold the shell after an asset sale. Shareholders may not authorize a voluntary winding up until the corporation has permission to surrender its certificate, and surrender needs a directors’ statutory declaration that “all money or property held in trust for which the professional corporation was responsible has been accounted for and paid over or distributed to the persons entitled thereto,” plus notice published in the Ontario Reports at least thirty days beforehand. If your deal depends on a clean vendor exit, that is on the critical path.

Trust money is not an asset you are buying

By-Law 9 requires trust money to be held at a listed financial institution or registered trust corporation, in the name of the licensee or of the firm, “and designated as a trust account.” A new obligation lands while most transitions are still running: By-Law 9 now requires an “irrevocable valid written authorization directing the financial institution where the trust account is kept to disclose to the Society upon its request information relating to the trust account.” For an account already open it is due by March 31, 2027; for a new account, within 30 days of opening. Open a trust account for a newly acquired practice and the thirty-day clock is yours.

Underneath sits the conduct rule: a lawyer “shall take care of a client’s property as a careful and prudent owner would,” must keep it distinguishable from the lawyer’s own, and where the proper recipient is unclear must apply to a tribunal for direction rather than guess.

The records have two clocks, and one runs for ten years

By-Law 9 lists twelve categories of financial records, from trust books of original entry and the clients’ trust ledger to bank statements, cleared cheque images and Teranet confirmations. The retention periods are not uniform, and buyers assume they are.

Record	Retention period
Most financial records under By-Law 9, ss. 18, 19, 19.1	At least the six years preceding the most recent fiscal year end
Section 18, paras. 1, 2, 3, 8, 9, 10, 11: trust books and ledger, inter-client transfers, bank and cheque records, electronic trust transfers, Teranet	At least the ten years preceding the most recent fiscal year end
Records for a mortgage or other charge under s. 20	At least ten years after discharge, or after the licensee ceases to be trustee
Client identification and verification records	The longer of the client relationship, or six years after the work
Closed client files	No fixed Law Society period; 15 years from closing “may be appropriate,” as a guideline only

On closed files the Law Society is explicit that there is no rule: “you are not required to retain all client files indefinitely,” and fifteen years “may be appropriate” but “is a general guideline only and you should exercise your own judgment,” with exceptions for minors, incapacitated clients and wilful concealment.

Original client property is its own category. Of items including “corporate minute books or seals or any original testamentary documents such as wills, trusts and powers of attorney,” the guidance says “you must not destroy original client property.” The options are return, continued secure storage, or transfer “to a successor licensee for safekeeping,” with the Law Society notified through Trustee Services. If you are the successor, that is a custody obligation with no end date, arriving on a truck. Deal with it in the agreement, or the default is an argument about whose wills are in the vault.

One shortcut. Since 1 January 2025, By-Law 7.1 has required most licensees in private practice to maintain a contingency plan “for the preserving or carrying on or the winding up of their professional business in the event the licensee is unexpectedly temporarily or permanently unable to practise,” appointing an administrator and recording the location of, and means of obtaining control over, all client, estate and trust property, all accounts, and all accounting records. Buying a sole practitioner’s practice, that is the most efficient diligence request you can make. A licensee who has complied has already written down where everything is. One who has not has told you what the file room looks like.

Asset purchase or share purchase

A corporation is a separate legal person with “the capacity and the rights, powers and privileges of a natural person.” On a share purchase it keeps owning what it owns and owing what it owes. On an asset purchase you take only the assets named in the agreement.

Question	Asset purchase	Share purchase
Certificate of authorization	Stays with the vendor; yours applies for its own	Stays put; the shareholder change is notifiable immediately
Past liabilities	Only what you expressly assume	All of them, known and unknown
Client files	Move on the client’s written direction	Stay put, but the retainer is still the client’s to end
Land Transfer Tax on premises the practice owns	Payable on the conveyance	“The transfer of shares of a corporation which holds land in its own right does not ordinarily attract tax under the Act”
Employees	ESA s. 9: service with the seller is deemed service with you	The employer does not change
Tax cost base	Set at the allocated price; goodwill enters Class 14.1 at 5%	You inherit the corporation’s existing tax cost

HST, section 167, and the receivables election people forget

HST in Ontario is 13%. Two federal elections matter here, and both are joint, which means they are negotiated rather than assumed.

The section 167 election applies where a supplier supplies a business or part of a business and the recipient acquires “all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business.” CRA reads that as generally 90% or more of the fair market value of the necessary property, and if the supplier is a registrant the recipient must be one. The parties jointly complete Form GST44. Three carve-outs survive the election: tax still applies to a supply of a service, to property supplied by lease or licence, and to a taxable sale of real property where the recipient is not a registrant. Buy the practice and the building through an unregistered entity and HST on the real property is payable notwithstanding the election. I have written separately about how HST clauses are drafted in an Ontario agreement of purchase and sale.

The section 22 election is the forgotten one. Where a vendor sells all or substantially all the property used in the business, including the debts, to a purchaser who proposes to continue it, a joint election in prescribed form lets the vendor deduct the shortfall between face value and consideration while the purchaser includes the same amount in income. The form is T2022. Receivables and work in progress are often the largest tangible item in a practice deal, so whether that election is made is your accountant’s call, not mine.

Hire the staff and you inherit their years

On an asset sale, section 9 of the Employment Standards Act, 2000 does something buyers misread as a formality. Where a purchaser employs an employee of the seller, “the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.” The exception is narrow: it does not apply if you hire the person more than 13 weeks after the earlier of their last day with the seller and the day of the sale. “Sells” includes “leases, transfers or disposes of in any other manner.”

So the assistant with eleven years’ service is not a new hire because you signed an asset purchase agreement. Terminate her after closing and statutory notice runs on her full service: at eight years or more, at least eight weeks. Severance under section 64 is a separate test, capped at 26 weeks’ wages. Common-law reasonable notice is larger again, and belongs to employment counsel.

What a law practice sells for in Ontario

Nothing credible is published. I looked for a primary source and there is not one. The Law Society publishes practice-management guidance on closing and transferring a practice, not transaction values. The closest Canadian government source is the Financial Performance Data benchmarking in Innovation, Science and Economic Development Canada’s Canadian Industry Statistics for NAICS 5411, legal services, reference year 2024, sourced to Statistics Canada. It publishes revenue, cost of sales, wages, operating expenses, net profit and loss, gross margin and ratios by quartile. No sale prices, no multiples.

Every revenue multiple and every “one times billings” rule of thumb on this subject comes from a private intermediary or a United States marketplace. Some of those people know their market well. None of them is a source. If someone quotes you a multiple for an Ontario law practice, they are quoting their own book, and you may ask to see it.

The lease is the part of the deal with a real market price

The premises are usually the only component of this purchase with a genuinely observable market, and the lease is the one contract that will still bind you in five years.

Assignment turns on the lease’s own wording. The Commercial Tenancies Act provides that a covenant against assigning without consent “shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that such licence or consent is not to be unreasonably withheld.” Read the qualifier. A commercial lease can validly give the landlord absolute discretion to refuse, and then the reasonableness proviso does not apply at all. Where consent is unreasonably withheld, a judge of the Superior Court may make an order that operates as the landlord’s consent. And a consent extends “only to the permission actually given,” so consent to your assignment does not waive the covenant for the next one.

On any asset purchase of a leased practice, then, the landlord is a party to your closing whether anyone has told them yet or not. Start that conversation early, put a proper lease review condition in the offer, and read the clauses that decide the economics before you get attached to the address. If you are buying the building too, the conveyancing is a separate exercise, and I have written about what that lawyer actually does. Run the trust comparisons and the file room first, structure and tax second, and the lease in parallel with both.

Does the vendor’s certificate of authorization come with the practice?

No. The certificate is issued to a named corporation under By-Law 7 on that corporation’s own application, and By-Law 7 contains no transfer or assignment mechanism. On an asset purchase, your corporation applies for its own. On a share purchase the certificate stays with the corporation you have acquired, but the change of shareholders must be notified to the Law Society immediately under By-Law 7, and the Act separately requires a professional corporation to notify the Society of a change in its shareholders.

Can a non-lawyer invest in an Ontario law practice?

Not as a shareholder of a professional corporation. Section 61.0.4 of the Law Society Act requires all issued and outstanding shares to be legally and beneficially owned by persons licensed to practise law in Ontario. The Business Corporations Act adds that all officers and directors must be shareholders, that a proxy or agreement vesting voting rights in a non-shareholder is void, and that a unanimous shareholder agreement is void unless every shareholder is a member of the profession. Any financing structure has to live inside those rules; that is a question for corporate counsel.

Do the clients transfer when I buy the practice?

No. Law Society guidance on closed files requires documents belonging to a client to be delivered to the client, or to another licensee of the client’s choosing, on their written direction. The alternative is that the outgoing licensee continues to preserve them, personally or by transferring them to a licensee taking over the practice. For active matters the licensee must obtain the client’s instructions on return or transfer, including any remaining trust funds, and confirm receipt. You are buying an introduction and a transition, not a book you own.

How long do I have to keep the records I inherit?

Two clocks. Most financial records under By-Law 9 must be kept for at least the six-year period immediately preceding the most recent fiscal year end. Seven categories, including trust books of original entry, the clients’ trust ledger, inter-client transfers, bank statements and cleared cheque images, electronic trust transfer records and Teranet records, must be kept for at least ten years on the same basis. Mortgage records run ten years from discharge or from the day the licensee ceases to be trustee. Client files have no fixed Law Society period.

What happens to money sitting in the vendor’s trust account?

It belongs to clients and it is not part of what you are buying. By-Law 9 requires trust money to be held in a designated trust account at a listed institution in the name of the licensee or firm, and requires a monthly trust comparison supported by a client-by-client listing and a bank reconciliation, created within twenty-five days after month end. Where a professional corporation surrenders its certificate, the directors must declare that all trust money has been accounted for and paid over to the persons entitled to it.

Is the section 167 election automatic?

No. It is a joint election, so the vendor has to agree to it. It applies where the recipient acquires all or substantially all the property necessary to carry on the business, which CRA generally reads as 90% or more of fair market value, and where the supplier is a registrant the recipient must be one as well. The parties complete Form GST44 and file it by the recipient’s return deadline for the first reporting period in which tax would have been payable. Your accountant decides whether it fits.

If I keep the vendor’s assistant, do I inherit her years of service?

On an asset sale, yes. Section 9 of the Employment Standards Act, 2000 deems employment with the seller to be employment with the purchaser for any later calculation of length of employment, and deems the employment not to have been terminated. The exception applies only if you hire the person more than 13 weeks after the earlier of their last day with the seller and the day of the sale. Statutory notice at eight years or more of service is at least eight weeks.

What is a fair multiple for an Ontario law practice?

I cannot tell you, and neither can anyone else with a source behind them. No Ontario regulator and no Canadian government publication reports law practice sale prices, goodwill values or valuation multiples. The Law Society publishes practice-management guidance, not transaction data. The ISED and Statistics Canada Financial Performance Data for NAICS 5411 publishes operating benchmarks, not sale values. Every multiple in circulation comes from a private intermediary or a US marketplace. Use a valuator who will show you their comparables and their reasoning.

Sources

• Ontario e-Laws — Law Society Act, R.S.O. 1990, c. L.8
• Law Society of Ontario — By-Law 7 (Business Entities)
• Law Society of Ontario — By-Law 9 (Financial Transactions and Records)
• Law Society of Ontario — By-Law 7.1 (Operational Obligations and Responsibilities)
• Law Society of Ontario — Closing your practice: manage closed client files
• Canada Revenue Agency — GST/HST Memorandum 14-4, Sale of a Business or Part of a Business
• Ontario e-Laws — Employment Standards Act, 2000
• Innovation, Science and Economic Development Canada — Financial Performance Data, NAICS 5411 Legal Services

This is general professional commentary from a Broker of Record on commercial and business acquisitions in Ontario. It is not legal, tax or accounting advice, and it does not create any professional relationship. Whether a licence transfers, how a purchase should be structured, what tax applies and what a regulator will require on your particular file are questions for your lawyer, your accountant and the regulator itself. Rules, fees and published requirements change — verify anything you intend to rely on against the primary source on the day you rely on it.