As a small business, you’ll need to find ways to grow and become more successful. While loaning money from banks and lending institutions is an option, it’s probably too risky and the interest rates are high. A good option is to seek a business opportunity somewhere or in another business, just like a merger or a joint venture. For that, you’ll need a reliable business letter of intent. If you’re looking for samples, then you’ve come to the right place. This article includes professional letter of intent samples and some useful information about a letter of intent.
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What Is a Business Letter of Intent?
A formal letter of intent is a document used by a business entity to express or show their interest in doing business with another. The document is commonly used in many business transactions in outlining key terms of a prospective deal. It’s almost like a proposal sample except that it in the form of a letter. A letter of intent for business partnership aims to announce the nature of a deal, protect the parties involved, and clarify the key terms to be negotiated.
How to Write a Business Letter of Intent
Here’s are simple steps to guide you with writing a business format letter of intent.
1. Write a Good Introduction
Why is a good introduction necessary? You want to get the attention of your reader, so you need to make things interesting at the start. For example, when writing an introduction for a letter of intent for a startup business, you’ll need to state your purpose and a description of the transaction. It is also important to include the names and roles of the parties involved.
2. Provide the Transaction Details and Timeframes
This is the section of your letter where you provide the details of the business deal you are joining and the possible pricing for any purchase. Timeframes about future negotiations can also be added. However, you need to take note that the details may be subject to change.
3. State That It Is a Nonbinding Agreement
Include a list of contingencies, due diligence, and details on covenants and other binding agreements. But make sure to state that your intention to do business is not a legally binding agreement. It’s more like an introduction to the future negotiations you will be doing.
4. Provide a Closing Date
The closing date will serve as a deadline for the transaction. If the deal has not concluded on the closing date, then the transaction and the letter of intent will be terminated.
What is the purpose of a letter of intent?
A letter of intent is a tool used to facilitate the start of a business deal, such as a joint venture or a merger. Its purpose is to provide an outline of the fundamental provisions of an agreement before the actual negotiations start. It is also used as a basis to form the final points and details of the agreement.
What is included in a letter of intent?
A letter of intent for business will include the following information:
- Price adjustment
- Structure of the transaction
- Time of activities (due diligence and deal negotiations)
- Any escrow
- Scope of the key presentation
- Exclusivity details
- Treatment of seller employee options
- Seller limitations
- Confidentiality obligations
- Continuation of indemnification obligations
- Conditions for closing the transaction
- Determination for a non-compete/non-solicit agreements
- Termination of the acquisition agreement
- Handling of disputes
What is the difference between a short-form and a long-form letter of intent?
A short-form and a long-form letter of intent are the two ways in which we can write a letter of intent. As its name implies, a short-form letter of intent is a brief letter containing the price and a few key details of a business transaction. It is great when you need to do a quick negotiation. The downside is that a lot of important details are left out to be resolved in later negotiations. A long-form letter of intent, on the other hand, is more comprehensive and covers a lot of important key provisions of a potential business deal. A lot of the issues surrounding the deal are identified early on in the negotiations. The problem with the long-form letter of intent is that it may cause the negotiations to get stuck at some point, making it difficult to get a deal done.
Is a letter of intent binding?
A letter of intent is not binding. Both parties during this part of the negotiations are seeking a potential business opportunity. They are not willing to be bound to any transaction or obligation. Unlike what you see in sample agreements or sample contracts, a sample letter of intent to do business does include confidentiality and exclusivity provisions. It should only be about a business proposal.
Perhaps the best business letter of intent to make is one that is short and straightforward. You’ll be missing a lot of important details in your letter, but you can always discuss those details during future negotiations. What matters is a clear expression of your commitment to do business.
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