When Decisions Matter.


Is it a good idea to sign a Letter of Intent before buying or selling a business?

Yes, it if is drafted properly.  The purpose of a Letter of Intent (“LOI”) is to summarize key transaction terms that have been agreed upon in principal.  It is signed prior to the preparation of the purchase agreement, and is designed to confirm the parties’ intent before they undertake the time and expense of preparing the detailed transaction documents.  An LOI may also include provisions which mandate confidentiality and prohibit the seller from entertaining other offers for a period of time.  But be careful, LOI’s can also be a source of disagreement when they fail to clearly state whether they are merely a non-binding summary of anticipated key terms or a legally enforceable document that imposes binding obligations on the parties.  While an LOI can be a helpful tool for both parties, it is important that it be reviewed by legal counsel in order to avoid unintended pitfalls.

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