Selling a Business: The Letter of Intent
What is a Letter of Intent?For those of you that don’t know, a letter of Intent is a document outlining one or more aspects of an agreement – or, rather, an anticipated agreement – between two or more parties before all the agreement’s terms and conditions are finalized. Some brokers use the phrase “term sheet” in place of the LOI or even a memorandum of understanding (“MoU”) but all are generally used as an initial document to govern an anticipated material transaction. Many LOIs include confidentiality or non-disclosure agreements (NDAs), which contractually stipulate the components of any deal – or discussions of any deal – both parties agree to keep confidential. Many LOIs also feature no-solicitation provisions, which forbid the parties from poaching the other party’s employees.
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to market and sell businesses.
Become a Professional Business Broker…LOIs resemble short, written contracts, but they are generally not contracts insofar as they are not, with the possible exception of any aspects relating to confidentiality and employee poaching, binding on the parties.They are mercifully free of all the legal jargon that a final, binding agreement will contain.
LOIs are useful when two parties want to hammer out the broad strokes of a deal before the finer points of a transaction are resolved. LOIs often include provisions stating that a deal may go through only if financing has been secured – or that a deal may be quashed if final papers are not signed by a certain date.
The general purpose of an LOI is to outline the salient points of a deal – purchase price and what can effect that price, due diligence requirements, time targets (dates by which certain events or tasks must occur or be completed), confidentiality issues, anticipated closing date and the like.
What Is a No-Shop Clause?
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.