What is a Letter of Intent (“LOI”)? A LOI sets out the fundamental terms of a business transaction in anticipation of entering into a more comprehensive agreement. The LOI essentially lays out the plan for a particular business transaction to take place.
How do you know when to enter into a LOI? There are multiple considerations when deciding whether to pursue an LOI. One of the most important things to consider is if it is worth your time to enter into an LOI when you could be composing an actual Purchase Agreement. For example, if you are trying to close on a deal quickly, and believe you are not far off from the other party on the essential terms, it may make sense to begin negotiating the Purchase Agreement without entering into any LOI.
Another important aspect to consider is whether the LOI is binding, non-binding, or partially binding. Usually, most of the terms of LOIs are non-binding and state that both parties are not bound to complete a transaction until the parties have come to a final agreement. Despite the general non-binding nature of LOIs, often LOIs will include a binding provision that establishes an exclusivity period in which a seller cannot try to engage other potential buyers in a sale. Enforceability of an LOI depends on the manner in which the LOI is drafted. If you want part of your LOI to be enforceable, and the rest non-binding, it is best to make this explicit in the document.
This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.