We all know how tough negotiating can be. There are instances where formalizing these negotiations can be vital to the success of a corporate entity. Putting the terms and conditions of such settlement in writing is the perfect way to avoid disagreements, which is why writing a simple agreement letter can make a huge difference.
Parties involved in a given transaction usually instruct their legal attorneys to create definitive contracts once a “handshake deal” has been reached. In the process of finalizing a negotiation, an agreement must be made in the form of a formal letter.
An agreement letter, which is sometimes referred to as a professional letter of intent, is a type of business document that sets forth the terms and conditions of a proposed deal to formally confirm that these terms have been settled and that the parties involved are on the same page.
A letter of agreement typically outlines the overall structure of the transaction, the conclusive agreements that shall be consulted and signed, the significant terms of such, as well as the drafting responsibilities of each party.
Other provisions included in the business agreement are made explicitly binding, such as those that govern confidentiality, apt diligence rights, and reimburse expenses made by the other party. The terms included in the letter act as a road map to solidify the document and prevent potential renegotiation.
Apart from those mentioned, a letter of agreement plays a huge role in business for a number of reasons. For one thing, it identifies the “deal breakers” earlier on in the process.
Any probable circumstances that may affect the proposed agreement are settled prior to its finalization. This allows both parties to summarize the key terms and conditions that must be agreed upon in order to carry out the transaction, for the primary reason of reducing or even cancelling out future concerns regarding these specifications. You may also see partnership agreement examples & samples.
Anything demanded by one party that is considered to be unacceptable by the other may lead to the termination of the said negotiation after incurring minimal cost. Keep in mind that drafting this document can be complicated, time-consuming, and expensive, so any disputes that cannot be reconciled should be recognized early on to prevent further waste of resources. You may also like service agreement examples.
Secondly, communication is key in business. Without the letter, misunderstandings are bound to stand in the way, keeping the parties involved from meeting halfway. Signs that show how unreasonable or dishonest a given party has been during the process of negotiation will also make it easier for the other party to decide whether the project is worth pursuing or not. You may also check out sales agreement samples.
The simple letter, therefore, is seen as an intermediate step towards closing the deal. Though many attorneys have debated whether these advantages outweigh the possible disadvantages, an agreement letter has still proven to be an important part of the entire process.
An agreement letter is meant to be a formal letter written to reveal the settlement over certain issues that had been previously discussed and debated on by the business and its client. While such letters are kept short in order to clarify terms and conditions in a clear and concise manner, and with no set format to follow, there are a few things that one must remember when writing these types of documents.
What will the corporate entity be responsible for in the transaction? Will they be tasked to write a newsletter or design a business logo? It must also explain what the client will be accountable for during the production of the project.
Any tasks or project responsibilities that must be carried out by either the business or its client must be clearly specified in the document. This includes other project-related products and services such as site preparation, photography, and newsletter writing.
Project costs are never definite, as there are various factors that may affect its totality along the way. Instead, price estimations are provided in order to give the client an idea of what must be expected. This could be a price range (such as $1,000 – $1,500), including the maximum amount that the client will likely pay. You may also see roommate agreement examples.
Projects that have a different type of nature and are required to be settled at an hourly rate must also be specified in the document. Any other expenses that are included in the process must also be indicated as part of the additional fees.
To ensure effective project management, a proper timeline containing a list of specific dates that indicate when the first and last drafts are due must be created beforehand. The agreement letter must cover this area accordingly in order to guide each party and prevent last minute changes.
How will the client pay the business? In some cases, a down payment is required for the initial stage of the project, while the remaining balance is settled once the project has been completed. This must be outlined in the letter to avoid any financial issues that might affect the project delivery. You may also like marketing agreement templates and examples.
Copyright concerns and other probable issues that need to be addressed professionally must be consulted with an attorney beforehand.
Keep in mind that the general purpose of this legal document is for the parties to meet at an agreed-upon objective. Though this is more formal than a verbal agreement, it’s not as formal as an official contract.
Now that we have an idea of what must be covered by the document, it’s now time to look into the different components included in the agreement letter:
What is your purpose for writing the letter?
If your purpose is to settle the terms of negotiation of the said contract, or perhaps to record the provisions for the standard form, then you may not need an agreement letter, but “head of terms” document instead. You may also see how to write a separation agreement.
However, if your reason for writing the letter is to clarify certain works to be administered while pending for the full contract to be signed, then you’re on the right track.
This section of the document should explain the bigger picture on why the two parties came together for a particular project. This includes the names of the entities involved, a brief description of the work required along with its scope, financial obligations (if applicable), effective dates of the general agreement, and primary contacts for each party involved.
The mutual and joint responsibilities or collaborative tasks shared by the parties involved must be identified in this part of the official letter. In addition, the expected results for the joint efforts exerted, as well as the specific roles and responsibilities that must be executed by each entity, should also be clarified in the agreement letter.
If necessary, the financial aspect of the project must be analyzed thoroughly, including the amount of funding that one party should pay the other and the timing on which the transaction shall be made. The payment schedule must be justified through a timeline of deliverables that would explain why such payment is necessary. You may also see non-compete agreement examples.
This segment of the letter must specify the effective date of the agreement, its term (if applicable), and how the agreement may be terminated or modified under certain cases.
Finally, in order to seal the agreement with the terms of the letter, spaces are provided by the very end of the document for the authorized representatives from each party to sign. The date in which the simple letter has been approved by the parties involved is also required. It’s also important to provide an official copy for each entity to keep.
Now that we have established both the purpose and content of an agreement letter, it’s time to begin with the writing process. Below are a few guidelines as to how this may be conducted:
Before drafting your general agreement letter, set a meeting with the executives of the party you wish to collaborate with. You could either talk face-to-face or over the phone, depending on what’s convenient to the both of you. It’s important to negotiate things properly to avoid potential conflicts along the way. Not only will this help cut down on costs, but also ensures that both parties have reached a shared understanding on what’s to come.
An agreement letter must always be typewritten and printed. Using an official letterhead for the document is highly recommended to ensure legitimacy. Besides the essential parts of a letter (the heading, salutation, and body), the content of your letter should also explain your purpose in a clear and concise manner. You may also like consignment agreement examples.
You also need to define the work that must be performed, the benchmarks and timelines of the proposed project, potential revisions, payment details, and the law that will govern the agreement in case of a dispute.
Once the letter has been successfully drafted, you can then send over a rough copy of the agreement to the other party. This must then be signed by the said party once the document has been reviewed. Take note that any suggestions or concerns raised must be addressed before the letter is signed, so refrain from signing the document unless you both agree to its contents. You may also check out key differences between agreements and contracts.
Make sure to store the letter in a safe place after it has been signed. Though the letter might not be that important as of the moment, it may serve as a key evidence in settling future lawsuits and other legal issues.
When running a business, the negotiation process can be the most daunting procedure of them all. Sometimes, parties tend to overlook what has been stated in a commercial agreement due to the way it was carried out, or perhaps how the opposing party has failed to consider the other party’s own terms.
For this reason, the golden rule is to create an agreement letter that is clear, safe, and free from the struggles of indictment. The letter must be drafted carefully by the entities involved to avoid potential disputes that may arise in the near future.