A letter of intent, although not legally binding, is still regarded as a useful tool in confirming that the buyer and the seller have reached a sufficient meeting of the minds, if you will, to justify the time and expense of executing a final purchase and sale agreement.
It is often used in situations where one party is selling a business or facility to another, but the document may also be used to delineate the relationship in a supplier/customer agreement. In this article, we will discuss the technicalities involved in this important document.
Since a letter of intent is involved in important business transactions, it is vital that meticulous care is applied to creating it. There are a few basic elements that small business owners should make sure when putting together a letter of intent.
1. Terms and Conditions: In most situations, other than for buyers of a business letters of intent should establish as many details as possible to describe future transactions. Some of the elements include (1) the manner of the transaction, (2) the time frame for the transaction, (3) how work will be completed, and (4) information about the appropriate parties involved in the transaction. The importance of adding details to the letter of intent is to eliminate any possible future disagreements about how transactions should occur and to ensure that future transactions are detailed and come as close as possible in fulfilling an individual’s wishes without requiring future documentation.
2. No-Shop Provisions: If you are the potential buyer of a business, a no-shop provision prevents the selling party involved in the transaction from obtaining quotes or otherwise negotiating with other potential buyers between the time of the signing of the letter of intent and the closing of the transaction. The existence of a no-shop provision is to prevent the seller from using the buyer’s offer as a tool to shop around the deal.
3. Confidentiality Provisions: If you are the potential seller of a business, you want to make sure, unless you have a previously signed non-disclosure agreement, that the letter of intent includes a strong confidentiality and non-solicitation provision, especially if the proposed buyer is a competitor.
4. Conditions to Close: While letters of intent must include details describing future transactions, they should also outline what conditions must occur for a deal to close. The inclusion of the closing conditions helps in ensuring that the proper terms are satisfied prior to the occurrence of the transaction.
In creating a letter of intent, there are a few important things to remember:
If you are trying to create a letter of intent for grant funding, unless otherwise indicated, it must follow this format:
For letters of intent for business transactions, the exact structure depends on the specific type of business deal you’re involved in, but it will generally follow these sections:
1. Introduction: The introduction to any legal document or contract includes a statement of the purpose of the document, descriptions, and identification of the parties involved, and their part in the transaction. It also states the date upon which the document becomes effective.
2. Transaction and Timing: This section includes a general description of the transaction, including the type of business deal that will be entered into. It can also include a purchase price, although this remains negotiable.
3. Contingencies: A contingency is something that might happen but without much certainty. Regardless, if it does, the parties must be prepared to deal with it.
4. Due Diligence: This process is used by the buyer and sometimes the seller to go over the deal with a fine-toothed comb. The purpose of due diligence is to bring everything out in the open so there are no surprises. It involves checking records, verifying tax and legal documents, checking for liabilities or pending litigation, and asking lots of questions.
5. Covenants and Other Binding Agreements: Although a letter of intent itself isn’t binding, most business deals include sub-agreements called restrictive covenants that are typically binding. If one party doesn’t abide by them, it can damage the other. You might want to include some or all of these agreements in your letter, but they are not required.
Letters of intent run the whole spectrum from statements of purpose to graduate schools, cover letters to prospective employers, and letters to obtain grant funding. What they all have in common is a concise discussion of future plans and objectives.
1. Jobs and Careers: When you are looking for a job, a letter of intent expresses your interest in working for a company and asserts your qualifications for the job. Such a letter is essentially a cover letter, with an introduction that states your reason for applying for a position, a body that links your skills and competencies with the needs of the company, and a final paragraph reiterating your interest and requesting an interview.
2. Business Transactions: In the business arena, the letter of intent serves as a pre-contractual communication that proposes the terms and conditions that eventually lead to a binding contract. The letter of intent itself may be binding or not and can take on many different forms. Business letters of intent tend to fall into several general categories. One example is the assurance letter, which cements the commitment of the parties to negotiate exclusively.
3. Foundation Grant Funding: In the pursuit of a grant, you or your organization may be required to write a letter of intent to a foundation. In this case, it will serve as a forerunner to an eventual proposal. If the foundation likes your letter of intent, it will ask for the complete proposal.
Your letter of intent should provide a compelling summary of the project in a journalistic manner that accords with the tone of the foundation. It should encompass in three pages a description of your organization, the issue you are addressing, your budget, and any other information requested by the grantor.
4. Education and Academic Pursuits: Academics and scholars have their own version of a letter of intent, sometimes referred to as a statement of purpose or application essay. In this type of letter of intent, the prospective candidate to a program must convince an admissions committee that you would be an asset to the school’s community. An academic letter of intent should include specific courses you have taken and notable professors with whom you have studied. It should discuss relevant extracurriculars, publications in the field, and the reasons you have chosen this school as the place to pursue your studies.
A letter of intent is what you write when you are leaving a resume without being solicited for one, also known as cold-calling, or applying for a job in a more general situation, like a job fair or submitting your resume to a general pool.
Letters of intent are most often used to start the process of beginning a business deal, purchase, or project. Letters of intent are also often part of the process of applying to a university.
The parties may desire that the letter of intent be a legally binding contract. However, the details of most transactions are normally not discussed until the drafting of a full agreement, which means that the parties should be careful. It is highly suggested that legally binding letters of intent only be used if absolutely necessary.
Hopefully, this article will help you create your own letter of intent.