What is a Letter of Intent?
A Letter of Intent (LOI) shows that you are serious about a purchase or sale. Letters of Intent are used to outline some basic terms of a proposed business transaction, such as price and assets, as well as define an expiration date, an exclusive negotiation period, and any special warranties you'd like included.
The Letter of Intent should express the wishes of the buyers and sellers as they intend to work toward final negotiations. However, it is important to note that the intentions around the business agreement outlined in the letter will not be binding until a final transaction agreement or contract is signed.
Our form makes it simple for you to make a Letter of Intent for the future purchase of an entire company or part of a company. Get started now!
When to use a Letter of Intent:
- You are ready to enter serious negotiations for the sale or purchase of a whole or part of a company or corporation and you would like to define your intentions formally in writing.
- You are negotiating the purchase of a company or interest in a company and want to exclude the seller from negotiating with another party.
The intent of this Letter is to provide a written expression of the mutual interest of the following Parties:
in which Buyer(s) would purchase the business, materials, services or matters set forth in this Letter from Seller(s). This Letter also outlines some of the terms and conditions that a future agreement would include, as well as the exchange of information and documents that should take place in advance of the future agreement. The future agreement would require further documentation and approvals and the preparation of a definitive agreement which would set forth the material terms and a commitment from the Buyer(s) to purchase and the Seller(s) to sell.
. Prospective Transaction
The transaction, which the Parties have expressed a mutual interest in, involves the transfer of from the Seller(s) to the Buyer(s) ("Prospective Transaction").
. Purchase Price
The Prospective Transaction would involve payment from Buyer(s) to Seller(s) under the following terms:
. Liabilities of Seller
Buyer(s) would not assume any liabilities or obligations of Seller(s). Seller(s) would remain liable for any (known or unknown) liabilities or obligations not expressly assumed by Buyer and which arose before the consummation of the final or definitive agreement, and shall pay and discharge all known liabilities and obligations prior to closing.
. Due Diligence
Buyer(s) will be entitled to inspect and analyze the Seller's assets and inventory and the Seller's business and operations, including its books and records, customer orders, liabilities and prospects until the closing, or termination, of this Letter of Intent. Seller(s) will provide all information requested by Buyer(s) and Buyer(s) agrees to execute a Confidentiality Agreement and to not contact Seller's customers or suppliers unless authorized by Seller(s).
Before a final agreement can be made, Buyer(s) must be satisfied with the due diligence review and information and documents provided by Seller(s), as well as an authorization from the landlord to assume the lease, negotiation of employment contracts, environmental review (if applicable) and an agreement on the terms of the Definitive Agreement.
. Definitive Agreement
The Definitive Agreement will be structured as a purchase and sale of assets and will include customary covenants, conditions and warranties.
. Non-Binding Agreement
Except for the paragraphs entitled "Exclusivity" and "Public Announcements and Confidentiality Agreement," the provisions in this Letter of Intent are for informational purposes only and are nonbinding on all Parties. The Prospective Transaction requires further negotiation and documentation, including preparing and executing a final agreement. This letter does not require either party to proceed to the completion of a binding final agreement. The parties shall not be contractually bound to the sale, purchase or transfer listed above unless and until they enter into a formal, written final agreement, which must be in form and content satisfactory to each party and to each party's legal counsel, in their sole discretion.
. Public Announcements and Confidentiality Agreement
All parties hereby agree not to release any information to the public with regards to this letter or any potential agreement without the separate written consent of all parties involved. All parties agree that the terms of this letter of intent and any negotiations shall remain confidential between the parties and their legal representation.
. Authority to Enter Letter of Intent
The parties signing this letter affirm they are an authorized representative of their respective companies and have authority to enter into this Letter of Intent.
. Closing, Termination of Letter
Closing shall occur no later than days from the date the last signature is affixed hereto unless mutually extended by the Parties. The Letter of Intent terminates if Closing does not occur or has not been extended or if either Party provides written notice of termination. If the Letter terminates, the paragraphs entitled "Exclusivity" and "Public Announcements and Confidentiality Agreement" survives termination and continues to bind the Parties, as does any separately executed Confidentiality Agreement.
. Expenses Associated with this Letter of Intent and Due Diligence
The Parties agree to bear their own expenses, including attorney's and professional fees associated with any due diligence or any other matter associated with this Prospective Transaction.
. Governing Law
This letter shall be governed by the laws of the State of Commonwealth of .
Agreed to by Buyer(s)Seller(s)
And Accepted and Agreed to by Seller(s)Buyer(s)
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___Sign this document. This document needs to be signed by:
and all other Buyers.
and all other Sellers.
For the most part, the Letter of Intent is not legally binding. However, the paragraphs entitled "Exclusivity" and "Public Announcements and Confidentiality Agreement", will become binding when signed by the recipient(s) of the Letter.
___Everyone gets a copy. Anyone named in the document should receive a copy of the signed Letter.
About Letters of Intent
Learn about how to show your intent to make a purchase or sale
What are some of the special warranties I can include in a Letter of Intent?
When making a Letter of Intent, more often than not you may want to include a section regarding special warranties. This is used to outline any specifics that might make both parties feel more secure in the business they’re about to embark on together. Here are some examples:
When a company is sold or majority interests are purchased, it's not uncommon to give warranties to the seller that the buyer intends to maintain any employment contracts under the current corporation. An employee warranty, in this case, could read: “The buyer, should a final agreement be reached, intends to maintain the employment of any employees currently working for [company name].”
Transfer of clients
If the final transaction will likely include a transfer of clients from seller to buyer, you may wish to outline those intentions here. An example clientele warranty could read: "The seller, should a final agreement be reached, intends to transfer X% of clients to the buyer."
Logo and copyright
If the buyer requests the use of the seller's company logo or other copyright information, you may choose to state your intentions of buying the copyright material in the Letter of Intent. The same may be applied in reverse if the seller wants to reserve the logo or copyrighted material. For instance, the warranty could read: "The buyer, should a final transaction be reached, intends to have the legal right to use, reproduce, and alter the seller's company logo and all copyright information."
The section isn’t limited to just these three examples. If you have more you would like to add, you can easily edit your document with Rocket Lawyer. Get started now!
What is the difference between a Letter of Intent, a Memorandum of Understanding, and a Term Sheet?
These three documents are similar and often used interchangeably, which is why confusion is so common. While they vary a bit from each other, they are used for the same general purpose: to show intent and express an interest to form an agreement. Another thing they share is that most are considered nonbinding, unless wording is included to make it binding.
Keep reading for a breakdown of each document:
A Letter of Intent is most often used to start the process of beginning a business deal, purchase, or project. Letters of Intent are also often part of the process of applying to a university. However, our LOI template is intended to be used for business purchases.
A Memorandum of Understanding is often used at the beginning of a business partnership. It can be for a short-term agreement for a single project or between your business and another that you plan to work with often.
A Term Sheet is used to show interest in an investment opportunity. Often it is used to outline a potential agreement between an entrepreneur or startup company and investors. Term Sheets are used to start the process of establishing agreeable terms. Once both parties have agreed on the terms, a formal legal contract can be written.
Now that you know some of the specifics of how each document is used, you are ready to start your Letter of Intent. With Rocket Lawyer, it’s as easy as answering a few simple questions!
Letter of Intent FAQs
Is the Letter of Intent the right document for me?
If you are in either of the following scenarios, then the answer might be yes:
- You want to take serious steps toward negotiating the purchase of all or part of a company.
- You want to secure your interest in a company and request that the sellers exclude negotiating with another buyer.
Understanding what a Letter of Intent (LOI) is and when to use one can be a bit confusing. Basically, this letter just means that you are serious about continuing toward a purchase and that you want the other party to stop entertaining other offers. Our Letter of Intent template is suitable for all states.
What information do I need to make a Letter of Intent?
This document is rather simple. You should be able to make a professional agreement within a few minutes if you know a bit of basic information. Here is what you'll need:
- Your contact information, title, and business name.
- Prospective transaction and purchase price details.
- Liabilities or obligations.
- Negotiation rights.
- How long until the letter terminates.
The rest of the document is auto-filled when you submit the above information. Once created, you can save, share, and edit the document online. You can request an electronic signature or print the Letter of Intent for signing.
Are Letters of Intent legally binding?
While most are not legally binding, there may still be consequences for not complying with the agreed-upon portions of the letter. A Letter of Intent is often seen like a purchase or crowd-sourced order, so it is generally used to help secure funding or prove the value of the business. If the other party drops out or doesn't honor the letter "in good faith," the company may incur actual financial damage.
However, in court, most often the judge will make decisions based on the implied intent expressed in the letter. Sometimes there can be recourse if the parties do not follow through toward an actual legal agreement. We can connect you with a Rocket Lawyer network attorney if you need additional assistance or a document review.
Does a Letter of Intent have an expiration date?
Yes, an expiration date is included so that the Letter of Intent will not continue to be valid if negotiations fall through. Typically, the expiration date is the expected finalization date for a transaction agreement. An expiration time is needed to further define the expiration of the Letter of Intent. With an expiration date, it is less likely that the Letter of Intent will be interpreted as a binding contract by a court of law.
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