A letter of intent (LOI) is often a written document that outlines the important thing terms and conditions of your agreement that can form the foundation a contract, previous to it being finalized. LOI’s are normally drafted by way of a buyer and express their serious interest to enter into a small business transaction and continue the discovery further. The key points most frequently compiled in a LOI include: kind of acquisition (stock or asset), detailed listing of assets (and liabilities) to get acquired, cost, payment method, contingencies, data needed to complete research, and target dates for contract signing and closing. At its most rudimentry level, the LOI says that, provided that certain criteria per the LOI will be as represented from the seller, the consumer will buy the company similar to the terms outlined within the LOI. In most cases, LOIs will not be legally binding while some could contain specific provisions which can be binding, for example covenants to negotiate in good faith, no-shop or standstill provisions (exclusive rights to negotiate, often in addition to earnest money deposits), and Non-Disclosure Agreements (NDA). In the most of cases, another NDA (aka confidentiality agreement [CA]) should have been executed between parties throughout the initial discussion stage, before the drafting of any LOI. An NDA imposes binding obligations of confidentiality that may survive the non-binding letter of intent. LOIs are useful to both the client and seller. The fundamental goal with the LOI is usually to confirm that a ‘meeting from the minds’ continues to be reached ahead of both parties making the big investments of energy, energy, and expense necessary to execute a Definitive Purchase Agreement (DPA), aka Asset Purchase Agreement (APA).

Many individuals use the terms Letter of Intent, Memorandum of Understanding, and Term Sheet interchangeably, however you will find slight, mainly style, differences.

Memorandum of Understanding (MOU):

The main difference relating to the MOU and LOI could be the nature on the signatories. While two parties get excited about a LOI, a MOU can involve greater than two parties. Additionally, while instructions of intent needs merely the party which proposes the agreement for being a signatory, a MOU means that all the parties involved have for being signatories.

Term Sheet:

While a LOI is commonly written in letter form, a phrase sheet is really a short, relatively informal document, prepared in bullet-point format. Term sheets are sometimes used being a preliminary ‘stepping stone’ proposal that record several parties’ intentions to enter into the next agreement dependant on specified (but incomplete) terms. A term sheet may become an invaluable time saving tool in achieving agreement about the main points from the deal. Once executed, the word sheet will move the final terms in the agreement, as both sides complete the negotiation, often with lawyer.

LOI’s, MOU’s, and Term Sheets provide several positive aspects to negotiating the acquisition of any privately held business but might not be appropriate for all transactions. In some cases, a buyer should have completed extensive required research, having obtained and examined sufficient company records, financial statements, and taxes whereby they believe comfortable foregoing the LOI and, in the place, will show a binding Definitive Purchase Agreement (DPA). Skipping the LOI step entirely, when appropriate, could save significant time and cash for both sides, while still making it possible for the opportunity to negotiate any minor details from the DPA process.