They say making purchases is therapeutic. Well, not when you’re buying the most crucial ones. Making significant deals and buying assets that entail not only a large sum but also a tedious process brings no humor. It’s challenging, and you have to constantly check whether you’re on the right path and if you’re making the right deals. The purchase letter of intent takes a great burden off your back when it comes to these circumstances. It helps you understand what the transaction is all about and all its components to assure you that you’re on the right track.
FREE 15+ Purchase Letter of Intent Samples
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What Is a Purchase Letter of Intent?
A purchase letter of intent (LOI) shows the buyer’s interest in purchasing a product or services from another entity. Unlike most letter documents, an LOI can turn into a legally binding document when the parties involved in the purchase reach an agreement and decide to perform the terms written on it. It’s also more detailed and can be akin to a business contract as it provides a comprehensive outline of the transaction.
Why Is a Letter of Intent Important
According to The Balance Small Business, the letter of intent or LOI works a valuable document that helps keep the parties informed on the deal’s details before they come up with the decision. In most buy-and-sell scenarios, buyers have limited access to what they’re purchasing unless they close the deal. However, LOI allows them to dive into the seller’s finances and records to make sure that the latter is presenting accurate data presenting their for-sale assets.
Aside from this purpose, an LOI is especially important in major purchases because it provides a definite structure to the transaction. It allows an exhaustive review of the terms at the initial stage of the deal. It also defines the timeline and deadlines in preparing for finalizing the agreement. The LOI provides all crucial details to ensure that both parties understand what business entails and how they’ll be able to make the best decisions.
How to Make a Purchase Letter of Intent
Below are steps that you can use to make a purchase letter of intent:
1. Determine the Purchase Items
Because this particular type of LOI focuses on purchasing, your document should have a clear outline and description of the purchased assets. State what each party agrees to sell or buy. While this is something that they can settle through discussion or they might have both already know what is up for sale, it’s necessary to include them on the LOI for obvious purposes that the document should contain the complete details of the transaction. This is also to clear any doubt and make sure that they understand what this is all about by specifying the purchase items.
2. Discuss the Price
A discussion on purchase is never complete without ever discussing the price of the items. After all, in any business dealings, money is of the essence. It can be a motivator or a source of discouragement. This is a crucial part of your LOI. This will determine how much the buyer is willing to pay for the assets and shares and how much the seller will receive. When discussing the price, include the payment schedule to make it clear when the payments are due. Besides that, it’s also important to specify the payment method. Address all payment-related terms, such as further details on security payment.
3. Include Contingencies
Contingencies are those necessary actions or events before both parties agree to finalize the LOI. This section of your letter can have a myriad of requirements, such as getting regulatory approvals, getting the executive’s green signal, making relevant adjustments to the deal’s terms, completing certain documents, and others. This heavily depends on the kind of asset being purchased. Aside from the contingencies, due diligence is also a significant part of your LOI. This is the process where both parties thoroughly go through the details of their deal and look for unearthed liabilities that may prove to be a problem later on.
4. Mention Relevant Business Agreements
It’s important to establish both parties’ roles in the transaction by providing them with certain business agreements that help provide restrictions and protect each of their interests during the deal. You LOI should specify what these agreements are and what each of them means to your transaction. The most common involved business dealings are the non-compete agreement, the non-solicitation agreement, and the non-disclosure agreement. Identify which suits your situation the most and spell out which parts of your transaction these agreements are applicable. State what consequences await the parties when they deliberately breach these restrictive covenants.
What are the different types of purchase letters of intent?
The different types of purchase letters of intent are business purchase letters of intent, stock purchase letter of intent, and real estate purchase letter of intent.
What are the different uses of a letter of intent?
The different uses of a letter of intent are:
- Buying or leasing a real estate property
- Buying or leasing a commercial property
- Buying a business
- Buying shares or assets
Is a purchase letter of intent the same with a purchase agreement?
No. The purchase letter of intent provides information about the transaction in great detail and is often used in large transactions. However, the purchase agreement follows the letter of intent and usually signals that the parties already agreed to make the transaction happen.
The purchase letter of intent makes complex and large transactions comprehensible and easier to discuss before any of the parties seals the final decision. It also protects everyone’s interests while the transaction is on-going so everyone is aware of their roles and restrictions. Consider our premium letter of intent templates for your use. Download now!
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