The Deal Behind Letters of Intent

A letter of intent is a pre-acquisition agreement that shapes the preliminary understandings of the parties. Although usually non-binding (for the most part), it serves as the bridge between initial negotiations and the purchase agreement. And that’s important because the letter of intent should facilitate the deal.

The letter of intent will set forth the proposed deal structure, price, payment terms, and other general terms–a transaction summary. But more importantly, the letter of intent spells out the preconditions to closing the deal, such as due diligence process issues, purchase agreement construction, and any nondisclosure requirements.

Most of the time, the letter of intent does not create a binding obligation for the parties to do the acquisition. But that doesn’t mean a non-binding letter of intent is a document without a purpose.

5 Responses to “The Deal Behind Letters of Intent”

  1. Deb October 3, 2009 at 11:51 pm #

    I have signed a letter of intent for acquisition of my business. No monetary offer was made verbally or written regarding the 85% acquisition of my business. Can I follow this LOI with a letter of sorts that releases me from the intent after a period of time, because of nonpayment for the acquisition?

  2. Deb October 3, 2009 at 6:51 pm #

    I have signed a letter of intent for acquisition of my business. No monetary offer was made verbally or written regarding the 85% acquisition of my business. Can I follow this LOI with a letter of sorts that releases me from the intent after a period of time, because of nonpayment for the acquisition?

  3. Ryan Roberts October 5, 2009 at 4:17 pm #

    The LOI should be non-binding, maybe except for some provisions of confidentiality and no-shop issues. I'd seek out an attorney.

  4. Ryan Roberts October 5, 2009 at 11:17 am #

    The LOI should be non-binding, maybe except for some provisions of confidentiality and no-shop issues. I'd seek out an attorney.

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  1. Letter of Intent Terms | The Startup Lawyer - January 21, 2008

    [...] recently worked on a deal where the prospective seller over-strategized the letter of intent. The seller wanted my client to sign a non-binding LOI that contained about half of what should [...]

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