The Importance of a Letter of Intent

Business contracts are essential to hold both parties accountable for promised actions or deliverables. These contracts are not one size fits all — contracts should be created to outline the specific needs and expectations depending on the industry.

Many elements can be included in a business contract. Before a contract is officially signed, two parties may sign a letter of intent.

Defining a Letter of Intent

A letter of intent is a formal document stating that one party has the intention to fulfill an obligation. These are common with school commitments and athletic contracts, but a letter of intent can also be used for businesses.

The letter of intent typically features professional and respectful text stating one’s intentions with a particular business. This document is not usually legally binding, but it shows someone has good faith in delivering their promises.

Types of Letters of Intent

For businesses, there are three common types of letters of intent.

Purchase of a Business or Real Estate

This letter of intent states that one party is committed to purchasing a business or real estate. The letter could also include the terms and conditions that must be met before each party agrees to sign the official contract. This can include details such as stating that certain requirements must be met by a specific date; otherwise, the contract won’t be signed. With this type of letter of intent, it should be clear to both parties that no official purchase agreement is valid until an official purchase contract is signed.

Acquisition of a Business or Real Estate

This is similar to a purchase letter of intent. However, an acquisition letter of intent is usually kept confidential. This means that if either party disclosed details about the letter of intent or a potential contract, the acquisition could be called off.

Employment Letter of Intent

When someone is ready to start a new job, the employer may ask their future employee to sign a letter of intent. There are many reasons this could happen, such as the prospective employee is under contract somewhere else or the employer doesn’t have the employee’s contract prepared yet. Either way, if conditions in this type of letter of intent are violated, it could result in the future employee not working for the employer.

How To Write A Letter Of Intent: For Business Transactions

Before formalizing a business deal, a letter of intent (LOI) acts as an outline of the terms and understanding between the parties. Although a letter of intent is not legally binding, our business contract attorneys stress that it is an important document that sets the tone for further discussions.

Below are some ways to write an effective LOI:

Purpose and Parties: Clearly express the letter's goal and include any parties that are involved. This establishes the background and makes it clear who is involved in the possible agreement.
Key Terms: List the important terms and conditions. This could include the cost, the terms of payment, the deadlines, and any other essential details related to the deal. These terms serve as a starting point for discussion even though they are not definitive.
Intentions: Indicate if the letter of intent is binding or non-binding. An LOI is usually non-binding, with the exception of certain conditions like exclusivity and confidentiality.
Confidentiality: To safeguard private information shared throughout the negotiating process, include a confidentiality agreement.
Next Steps: Describe the anticipated course of events, including any additional negotiations, research, or formal contract drafting.
Legal Considerations: Having a legal specialist examine the LOI to make sure it safeguards your interests and complies with your goals. This phase ensures clarity and assists in spotting any legal issues.

By engaging a knowledgeable business contract lawyer, you can navigate the complexities of drafting an LOI, safeguarding your business interests while paving the way for successful contractual negotiations.

For experienced guidance with your LOI, contact Purdy & Bailey, LLP via online form or call (858) 360-7080 to request a consultation.

Questions About a Letter of Intent?

Whether you are someone looking to create a letter of intent or have questions regarding a letter of intent you were asked to sign, it is best to have an experienced contract law attorney working with you. The dedicated attorneys at Purdy & Bailey, LLP have created countless letters of intent and can review yours if you have questions about one. Reach out to our team online or by phone to schedule a consultation. (858) 360-7080