Overview of Letter of Intent (LOI)

Definition of
Letter of Intent (LOI)

Professor A defines Letter of Intent (LOI).

What is a Letter of Intent (LOI)? A Letter of Intent (LOI), sometimes referred to as a Memorandum of Understanding (MOU) or term sheet in certain contexts, is a document outlining the main points of a proposed deal, partnership, or agreement between two or more parties before a formal, legally binding contract is drafted. It signifies a serious commitment from the involved parties to move forward with negotiations and finalize the transaction based on the agreed-upon terms. While some provisions in an LOI (like confidentiality or exclusivity) may be binding, the overall LOI is often non-binding regarding the final deal itself.

Activities Related to
Letter of Intent (LOI)

Activities involved in drafting and using a Letter of Intent (LOI).

Here is a list of LOI related activities: Negotiating key terms of a potential transaction (e.g., price, structure, timeline), Drafting the LOI document, Reviewing the LOI with legal counsel, Signing the LOI to indicate preliminary agreement and intent to proceed, Conducting due diligence based on the LOI's framework, Using the LOI as a basis for drafting definitive legal agreements (e.g., purchase agreement, joint venture agreement), and Adhering to any binding clauses within the LOI (such as exclusivity or confidentiality).
These activities mark a significant step in formalizing a business deal.

The Importance of
Letter of Intent (LOI)

Two team members discussing the importance of a Letter of Intent in negotiations.

For businesses, a Letter of Intent (LOI) is important because it provides a clear, written understanding of the key terms agreed upon at an early stage of negotiation, reducing the risk of misunderstandings later. It demonstrates a serious commitment from both parties to pursue the deal, which can save time and resources by focusing negotiations. An LOI can also secure certain preliminary protections, such as exclusivity (preventing the seller from negotiating with others for a period) or confidentiality. It serves as a valuable roadmap for drafting the more detailed and legally binding final contracts, streamlining the transaction process.

Key Aspects of
Letter of Intent (LOI)

Golden Key highlighting key aspects of an LOI.

Preliminary Agreement
Outlines the basic terms of a potential deal before extensive due diligence and drafting of definitive contracts.

Binding vs. Non-Binding Provisions
While the overall agreement to complete the final transaction is usually non-binding, certain clauses within an LOI (e.g., exclusivity, confidentiality, governing law) may be legally binding.

Shows Serious Intent
Indicates that the parties have moved beyond casual discussions and are seriously considering a transaction.

Framework for Final Contract
Serves as a guide and foundation for negotiating and drafting the comprehensive, final legal agreements.

Concepts Related to
Letter of Intent (LOI)

Brainstorming concepts related to Letters of Intent.

A Letter of Intent (LOI) is a common precursor to more formal legal documents in business transactions like mergers, acquisitions, or significant partnerships like a Joint Venture (JV). It often precedes the due diligence phase. While not a final contract, it outlines key terms that will be further detailed. Understanding the difference between binding and non-binding clauses is crucial.