A Letter of Intent (LOI) is a non-binding document that outlines the basic terms and intentions of two or more parties before a formal agreement is finalized. It’s commonly used in business transaction such as mergers, acquisitions, joint ventures, or major contract to confirm interest and guide negotiations.
An LOI is generally less formal than a full contract, but it should still be clear, professional, and well-structured. Here’s what it typically contains:
• State that the letter is a Letter of Intent.
• Brief explanation of the context or purpose (e.g., buying a business, entering a joint venture, hiring a key employee).
• High-level summary of the planned agreement.
• Key terms such as:
• Type of transaction (e.g., purchase, investment, partnership)
• Assets or services involved
• Roles of each party
These are the main points the parties are agreeing in principle to, such as:
• Purchase price or valuation
• Payment terms
• Due diligence process
• Timeline for closing
• Conditions precedent (things that must happen before the final agreement)
• Job title and responsibilities
• Salary and benefits
• Start date
• Term of employment (if applicable)
• May reaffirm an existing NDA or introduce a new confidentiality obligation regarding the discussions or disclosed documents.
• A clause stating that one party agrees not to negotiate with others for a set period.
• Most of the LOI is non-binding meaning it’s not enforceable in court.
• Certain parts may be binding such as:
• Confidentiality
• Exclusivity
• Governing law
• Dispute resolution
Outline the path forward, such as:
•Entering due diligence
• Drafting formal agreements
• Setting negotiation timelines
• Optional, but may specify which jurisdiction’s law applies if there’s a disagreement.
• Names, titles, signatures, and dates of all parties to show mutual understanding and agreement on the outlined terms.
A Letter of Intent: