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What is a Letter of Intent?

Narendra Kumar

| Updated: Jul 19, 2018 | Category: Legal, Legal Agreements

Letter of Intent

A letter of intent (LOI) is a kind of document which outlines the terms of an agreement which is executed between two or more parties prior to the finalization of the legal agreement.  A letter of intent is not considered as a contract and therefore it cannot be legally enforced. It reflects the commitment made by one party to another party. Before the drafting of the full contract, it is used for transaction clarification between the parties. It basically declares partnership or negotiation and mutual understanding among the parties involved. It is also referred as a LOI. It shows the intention of one party in relation to another.

These types of documents can be prepared in a variety of situations such as at the time of business negotiations which will define the intention of purchase of real estate or which will also give the indication of intent to accept a formal offer. A letter of intent is mainly used as an initial proposal to the other party in business. The initial proposal may be concerned with purchases, or mergers or acquisitions. It gives clarification on points of a deal but it is not legally binding.

A properly drafted Letter of Intent (LOI) reflects that the parties are serious taking purchase or sale. We can help you in making a LOI for purchasing an entire company or part of a company.

What are the Things which must be considered while writing Letter of Intent?

Following below mentioned things must be considered:

  • A proper business letter format should be used.
  • The name of the correct person should be determined. It must also be ensured that the letter of intent is read by the correct person and one should avoid addressing the letter of intent to the wrong person.
  • It is the first step in business negotiations and it is a crucial part of the business negotiation[1] process.
  • While drafting it should be considered that it is concise and related to the topic.

When is Letter of Intent Required?

In the following situations it is required:

  1. If the party wants to take the first step in business negotiations for purchasing all or part of a company.
  2. To secure the interest in a company and
  3. To exclude sellers from negotiation with another buyer.

It is a bit confusing to understand what a Letter of Intent is? And when it is required?

Mainly, a letter of intent shows that parties are serious taking purchase and it also helps to stop another party to entertain other offers. We can provide you a template of Letter of Intent which will be suitable in all the states of India.

What are the Other Names of Letter of Intent?

LOI is also named as Memorandum of Understanding, Term Sheet, and Pre-contract.

What is the Basis Information Required for Making a Letter of Intent?

One must have certain information to draft a letter of intent.

Here, what you’ll require:

  • Contact information and name of the business entity;
  • Details of prospective transaction and
  • Detail of purchase price;
  • Description of obligations and liabilities
  • Detail of Negotiation rights
  • Conditions under which letter of intent will get terminated

After submission of the above-mentioned information with us, the rest of the information is automatically filled by our professionals.

What is the Legality of Letters of Intent?

intent is not legally binding. It is a type of document which is a pre-contract.  It helps in securing funding and also to prove the business value. In case of any fraud committed by the other party, the financial damage may be incurred by the company. Usually, the court often makes decisions on the basis of the implied intent is expressed in the letter of Intent.

We can help you in connecting with a lawyer for additional assistance or for the review of any document.

What is the Difference between Letter of Intent vs. Memorandum of Understanding vs. Term Sheet?

Above mentioned documents are almost similar and these documents are often used interchangeably. However, these are a bit different from each other. These types of documents are often used for the same purpose.

They all have the same purpose which reflects the intention of the parties involved in an agreement.

They are usually considered as “non-binding” unless it is enforceable by the law.

  1. Letter of Intent
    to start the process of any type of business deal such as projector purchase, letters of Intent are used. Letters of Intent is concluded as a crucial part of any process. Our team of professionals can help you in making a letter of intent.
  2. Memorandum of Understanding (MOU)
    Now if we talk about the Memorandum of Understanding then it is often used at the very initial phase of a business partnership. Memorandum of Understanding can be drafted for a single project as it is a short-term agreement between the parties such as your business and another party with whom you want to enter into a deal.
  3. Term Sheet
    A Term Sheet is a type of legal document which shows the interest in an investment opportunity. It is a potential agreement which outlines the terms between an entrepreneur and the investors. It is mainly used to start the process of investment. A formal legal contract can be executed once both the parties are agreed on mentioned terms.

Read our article:What are the Steps for Contractor Agreement

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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