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What You Need to About the Basics of the Letter of Intent for Selling Your Business

Once a seller and a buyer have come together on the basic terms of a business sale, the next step will usually be that the buyer sends a letter of intent to purchase the business. This is the first formal step in the purchase process by laying out the conditions and the terms of the agreement between the two parties.

Letters of intent are typically non-binding agreements that allow a purchaser to take a closer look at the expenses, revenues and operations of a company before putting together a formal contract. This usually represents the terms of the purchase and what the buyer may need from the seller in order to perform his or her due diligence before moving forward with an official contract.

After the seller signs the letter of intent, and the buyer completes his or her due diligence, the agreement will then be transformed into a legally binding contract. Even though the letter of intent is non-binding it indicates to a seller that a buyer does have an interest in setting up the terms for purchasing the business. This is particularly true if the letter of intent requires a deposit on the buyer’s behalf.

A no-shop clause may also be included for a specific period of time in order to eliminate a buyer’s concerns about competing offers. The letter of intent can also give the buyer a chance to perform due diligence by getting the relevant information he or she needs. It might also become easier to arrange financing for the venture which can make things easier on the buyer as well as the seller. The basic provisions inside a letter of intent include the scope of the business such as the structure of the deal, exclusivity, terms and conditions, and obligations.

Time periods may also be outlined regarding when the contract and the agreement will be complete. It should always be mentioned inside a letter of intent that this is a non-binding document and will always be super ceded by the legally binding more formal purchase and sale contract. Include provisions that state that this is a non-binding contract in clear and concise terms.

The right business lawyer can help you understand how to make use of the letter of intent as well as other documents that afford you protect while buying or selling a business.