Letters of Intent

The sale of a business often includes a letter of intent (LOI). If the LOI does not have appropriate saving language, it risks being a definitive agreement and binding the parties to a purchase and sale. If that is not the intent, extreme care must be taken to ensure the LOI is nonbinding. Nevertheless, some provisions may need to be binding. If there was no prior nondisclosure agreement, then the seller will want such provisions to be included in the LOI and that they be binding. The buyer often wants an exclusivity or no-shop provision in the LOI to prevent the process from becoming a bidding war. To be enforceable, these provisions must also be binding. LOIs are often used to delineate areas of agreement such as price, whether the purchase is an asset sale or an equity sale, and other material provisions. Care must be taken when determining which provisions are binding and which are not. Coming posts will explore these and other potential LOI provisions in more detail.

This post is provided as a courtesy and is not intended to be an exhaustive treatment of its subject but an overview of some of the elements of the subject discussed. It is not legal advice or a legal opinion and should not be relied on in making legal or business decisions.