What is a letter of intent?

A letter of intent (LOI) is an outlining document to determine the concord between two parties by the business. It consists of the principal requirements related to the venture. It records that the two parties have agreed to do a business or project and justifies its truthfulness. It is a necessary and initial step as it holds on to the agreement specifying the key points involved in the deal. Letter of intent is in the form letter declaring the meeting minds of both parties.

Purpose of Letter of Intent –

  • To understand the elements involved in the agreement between both parties.
  • Determining the basics of the deal
  • Determining the nature of the deal
  • Confidential and exclusive
  • The initial step, to save both parties’ time and efforts by specifying parties’ interests for further negotiation.

How to write a Letter of Intent –

After understanding the key takeaways of the letter of intent the important part is to know how to create a letter of intent.

In business deals, the letter of intent is generally drafted by the legal team of the organisation, like for merger and acquisition the organisation may specify the mode of transaction. A letter of intent is much more than a business deal since it is a non-binding yet useful tool to determine the basics of a venture.

If you deliver the letter of intent, you should keep in mind the objectives avoiding long information, making it more to the point. Here are some points to help you draft a letter of intent professionally.

  • INTRODUCTION – Be clear with the nature of the transaction, buying or selling, mention the name of both the parties and their part in this deal.
  • TRANSACTION & TIME – This part is descriptive since it includes the necessary details of the agreement like the price that can be negotiated, timeframe with respect to terms and conditions.
  • DUE DILIGENCE – This section is an analysis of the demands of both parties to avoid future contingencies and fasten the proceeding without confusion or doubts.
  • CONFIDENTIAL – Although a letter of intent is not a legal agreement that binds both parties, it is more of the initial step to inform both parties of their interests to deal. The letter of intent is a confidential letter where one party can state that the information shared in the letter must not be used for competing or any other purposes in future.
  • NONBINDING – Furthermore, you can state that this letter of intent does not bind the deal in any manner except for the matter stated in the letter.
  • DATE OF CLOSING – You have to mention the closing date or a deadline to conclude the deal. If any party fails to maintain the deadline then the letter of intent will be terminated irrespective of any reason.

Moreover, if you are drafting a letter of intent there are certain points to be kept in mind:

  • true to facts by providing correct information like the address or name of the receiver.
  • Be very specific and keep the content short and simple, do not include unnecessary information.
  • Be professional, use a formal tone and double-check the letter to avoid any kind of small or detailed mistake.

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