Simply stated, a Letter of Intent (“LOI”) is a non binding document that outlines the key business terms the parties have agreed to for the purchase and sale of a business, which will later become the basis for the Definitive Purchase Agreement and other agreements and documents needed for a closing.
Letters of Intent vary in length and specificity, but should spell out the major deal points, structure, deliverables, timeliness and contingencies that become the basis for the legally binding agreements. A LOI serves many purposes besides documenting the business deal, including the following:
- Serves as a record of the progress of the initial negotiations;
- Minimize the waste of time and money by both parties, because if they cannot reach agreement on the key terms and conditions of the transaction in the LOI, there is no need for legally binding documents to be prepared;
- Identify any items that need resolution in order to reach a preliminary agreement prior to due diligence;
- Act as the basis for the buyer to obtain financing from a lender;
- Define time frames and deadlines so that the transaction can move towards a closing in a predictable manner.
Keate Partners can provide a template Letter of Intent to the buyer for the buyer to fill in price, terms, and other particulars of the proposed purchase.