An LOI stands for "Letter of Intent." It is a formal document used in business transactions, particularly during the preliminary stages of negotiations between two parties. The Letter of Intent outlines the key terms and conditions that both parties intend to include in a formal agreement, such as a purchase agreement.
While an LOI is not a legally binding contract, it serves as a written expression of the parties' intentions and acts as a roadmap for further negotiations. The document typically includes important details like the purchase price, key terms of the transaction, due diligence requirements, and any other significant legal aspects that both parties agree to prioritize negotiating.
While the specifics can vary based on the nature of the transaction, here are some common elements found in an LOI:
Introduction and Background:
Purchase Price and Payment Terms:
Confidentiality and Exclusivity:
Governing Law and Dispute Resolution:
Timing and Milestones:
Binding or Non-Binding Language:
The LOI is used in mergers and acquisitions to establish a framework before moving into more detailed and legally binding agreements. It's crucial for both parties to carefully review and negotiate the terms of the LOI before moving forward, as the document serves as a foundation for subsequent formal agreements. It's also recommended for parties to seek legal advice during this stage to ensure their interests are protected.