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Types of Letter of Intent

Considering that letters of intent serve various purposes, there are many types of LOI:

  • Letter of intent to sue – this document states the intention of one party to take legal action against another party. Typically, the document sets a ceratin time period for the law breaker to resolve the conflict before the legal proceeding is started.

  • Letter of intent to purchase business – this document states the intention of a potential buyer to acquire a business. It usually details the business that is about to be purchased, the payment method, the closing dates, the time for the business’ owner to accept the offer, etc.

  • Letter of intent for a grant – the document states the intention of an organization to apply for a grant. It has to contaion the name of the grant, the goals of the organization, and the offer to submit a full proposal in the future.

  • Letter of intent for investment – the document states the intention of an investor to make an investment in a specific company. It should include the information about the investor and the company, amount of investment, number of stocks the investor gets, closing date, investment conditions, etc.

  • Letter of intent to hire – the document states the intention of an employer to hire an employee. It is typically sent by a hiring manager to a candidate who fits the company’s standards after the interviewing process.

  • Letter of intent for a commercial lease – the document states the intention of a potential tenant to lease a commercial property.

  • Letter of intent to homeschool – the document states the intention of a parent or guardian to homeschool their child.

How to Fill out a Letter of Intent?

Every letter of intent plays its own role, but a generic LOI to purchase a product or service will have a typical business letter format:

Step 1 – The date and the purpose of the letter

The first step to filling out the document is writing the date of the document, its name, and identifying the product that is expected to change owners in the future/the intention of the party creating the LOI.

For letters that offer the terms of purchase of an object, the next thing to include should be the description of the object. Please mind that different types of products and services will require different details. For instance, real estate that is about to be transferred under the letter of intent and future official purchase agreement has to include its address and legal description. A letter of intent that aims at establishing the sale and purchase of a business should provide specifications of the business and assets that will be sold along with it.

Step 2 – Information about the parties

The next thing to put in the agreement is information about the parties who plan to enter the formal agreement in the future (if the LOI is non-binding). The section should include their names and addresses.

Step 3 – Specifics of the future deal

For example, in a letter of intent to purchase a business, along with the price and the specifications of the business, there should be information about the company’s bank balances, stocks, associated debts, purchase price, etc.

Step 4 – Signatures of the parties

To show the mutual agreement of the parties their signatures should be out under the provisions of the letter. The date of signing should be added too.

Last but not least, the parties should both get copies of the LOI. This way, they can turn to the agreement in case of any future misunderstandings.

Frequently Asked Questions about Letters of Intent

How long is a letter of intent valid for?

The validity period might differ from case to case but is mostly defined in the document itself.

What are the consequences of breaching a letter of intent?

If the LOI had binding legal force, breaching its provisions might have the same consequences as breaching a contract.

How can I make sure my LOI will be binding?

You should put a statement in the document that states that the parties agree to be bound by its provisions if you plan to make it binding for both parties.

Do I need a lawyer to create a letter of intent?

You might need a lawyer to do it if the document is going to have binding legal force as its provisions should be in line with the law. If it is non-binding, you can probably do it yourself by using one of the LOI templates or samples.

How can I make sure that the letter of intent will be legally binding?

You need to make sure that the provisions of the document are in line with the law and that both parties agree to be bound by its terms. You can achieve this by including a statement to that effect in the LOI. You might also need to have the document notarized.

Can a letter of intent be changed?

Yes, a letter of intent can be changed if both parties agree to the changes. However, it is advisable to have a lawyer review any changes to the letter of intent before they are made, to make sure that the changes are clear and enforceable.

What happens if one party breaches the letter of intent?

If one party breaches the letter of intent, the other party may have a legal claim for damages. However, it is advisable to have a lawyer review the letter of intent before any action is taken, to determine whether there is a valid claim and to assess the potential damages.

Can I include confidentiality provisions in a letter of intent?

Yes, you can. In fact, it is recommended that you do so in order to protect your interests.

What are the most important things to remember when creating a letter of intent?

The most important thing is to make sure that the document is in line with the law. You should also include a statement that both parties agree to be bound by its provisions. Finally, don’t forget to have the document notarized if you want it to be legally binding.

Where can I find a sample letter?

You can find samples and templates of letters of intent online or in business books. You can also ask a lawyer for help.

What are the Elements of a Letter of Intent?

The elements of a letter of intent vary depending on the specific purpose of the letter.

However, all letters of Intent should be clear and concise, and should state the purpose of the letter in a specific and definite manner. The letter of intent should also define the scope of the agreement and set forth the terms of the agreement in a clear and concise manner.

Letters of Intent vs Similar Documents

Lettres of intent have something in common with some other documents.

LOI vs term sheet

A term sheet is mostly used in business deals and it outlines the main provisions of the future contract. A letter of intent can include all the provisions of the future contract or just some of them. It can also be binding or non-binding.

LOI vs memorandum of understanding

A memorandum of understanding is mostly used in business and it is a non-binding document that is created to show the general agreement of the parties on the main provisions of the deal. A letter of intent can be binding or non-binding and has a broader scope as it might include all the provisions of a future contract.

What are the Benefits of Having a Letter of Intent?

There are many benefits to having a letter of intent, including:

1. Clearly stating the intentions of the parties;

2. Avoiding misunderstandings between the parties;

3. Setting forth the terms of the agreement in a clear and concise manner;

4. Defining the scope of the agreement;

5. Creating a record of the agreement;

6. Serving as a basis for negotiation;

7. Providing a framework for further legal agreements.

Is a Letter of Intent a Binding Document?

A letter of intent is not a binding agreement in most of the cases. It is merely a statement of the intentions of the parties involved and does not create any legal obligations between them, as long as it is stated in the letter itself.

For instance, if a hiring manager sends a letter of intent to hire, their main goal is to let the canddate learn the basic employment conditions. The broader agreement, an employment contract, will be the main binding agreement in the employer-employee relations. The letter of intent should specifically mention this in one of the provisions.

However, if the specific language about the binding force is absent in the document, the parties might have a misunderstanding in the future regarding the compulsoriness of the provisions in the letter.

It is advisable to have a lawyer review the letter of intent before it is signed, to make sure that all of the terms are clear and enforceable.

Steps to creating an Effective Letter of Intent

A letter of intent is typically a concise document unless it involves a purchase of real estate or business and is binding (meaning it will be the base for the future purchase agreement). Here are some steps to creating a LOI.

Step 1 – Coming up with an agreement

First of all, the parties have to come to an agreement on whether or not they want to bind themselves by the letter of intent. Further, they should come up with its content – the description of the service or object that is about to be acquired, the price, the terms of payment, and other crucial details.

Step 2 – Creating a letter of intent template

The verbal agreement is not enough for business relations which is why the parties should create a letter of intent to formalize their intentions. The fastest and easier thing is to find an already made template that would let you fill in some specific details. A letter of intent template might be found on our website (you should carefully choose the type that fits your needs).

An important thing to pay attention to is that if you are creating a binding document, it should list all the provisions that a comprehensive agreement would have. However, if your plan is to create a non-binding document, you might include only the most important aspects of your agreement in the LOI.

Step 3 – Finalizing the deal

If you created a non-binding letter of intent, the finalization of the deal would be creating a formal agreement with a broader spectrum of details. In case the letter of intent has legal force, the proposed transaction might be considered completed once a LOI is signed by the parties.