Selling your business often requires a fair round of negotiations. The seller wants to receive the full value of their venture, while the buyer desires to pay a fair price on assets and policies. 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.
A letter of intent (LOI) is a written agreement regarding the sale and purchase. 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.
Is A Letter Of Intent Binding?
No, they are not, unless the agreement has a binding effect written in the fine print. 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 for offers.
Letter Of Intent To Purchase
The letter of intent can also give the buyer a chance to perform due diligence by getting the relevant information he or she needs. Such information can include the value of the assets. It might also become easier to arrange to finance 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.
Letter Of Intent Template
The letter of intent first names the seller, the buyer, and the business that is going to transfer ownership. The goal is to aim for clarity in good faith so that the terms are laid out before the purchase agreement becomes official.
Let’s say that you are buyer B selling to Seller S, and the business is a vintage umbrella retail shop. The terms would be laid out as thus:
- Buyer: B
- Seller: S
- Business: B’s Vintage Umbrellas
- Purchase Price Of The Business
- Assets Included In The Purchase – Land, Equipment, Vehicles
- Payment – The Total Price of Paying for B’s Vintage Umbrellas and Assets
- Financing – Loans, Capital, Equity
- Binding Effect – Only use this if you want the agreement to become binding. We advise against this if you want to keep negotiations open and to always check the fine print if you are the buyer.
- Necessary Dates – The closing date, when does the offer expire or terminate, and times for meetings with the seller.
- Due Diligence – How it will be implemented
- Buyer Satisfaction
- Additional terms can include potentially binding agreements on purchase specifics, deposit amounts, and additional assumptions that have not been laid out in the earlier details. Always check the agreement to make sure that it is fair to both parties.
Refine Your Due Diligence Process With Trembly Law
Trembly Law wants to assist you with your intent to purchase the business. 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 protection while buying or selling a business. Our law firm provides the best lawyers for the occasion.
Reach out to us today if you have a desire to have meaningful legal advice. A letter of intent to purchase should reflect a fair agreement, and we can help you dissect and analyze all of the terms.