Free Fillable Letter of Intent to Purchase Business

How to Fill Out a Letter of Intent to Purchase a Business

A letter of intent is never a small document as it has to include a lot of important details about the future deal. The typical length of the letter of intent is 6-8 pages. However, the letter is not comprehensible and an actual purchase contract generally includes much more information.

When. it comes to a business purchase letter, there will not be a strict format you should follow. For your convenience, we gathered the information that is commonly included in the letter in the following steps:

Step 1 – Date and subject of the letter

The letter of intent should begin with the date of writing and the purpose of writing. The paragraph should say that this letter is the basis for establishing a formal agreement agreed upon by both the buyer and the seller.

Step 2 – Companies entering the deal

Next, the names of the parties and the name of the business entity that is going to be sold should be specified.

Step 3 – The purchase price

The price of the transaction should be both numbers and words. This section can also indicate that all title to the company remains with the purchaser (or alternative options if the parties agree).

Step 4 – Real property

The next data to include in the letter of intent is the location and legal specification of the property owned by the company. The purchase price of a property should be in numbers as well as in words.

Step 5 – Moment of transferring the money for the business

The next section should state when the transaction price will be paid. It is not necessary to mention methods of payment as they will be included in a broader corporate purchase contract.

Step 6 – Binding force

If the parties decide that the letter of intent is going to be legally binding, they need to include a statement saying that there is no need to go forward with a more formal agreement. The LOI should also clearly state whether it is going to be legally binding or not. If it is, the buyer and the seller will have to abide by all the consequences of breaking the terms of the letter of intent.

Step 7 – Bank balances

The seller is going to ensure that all the bank accounts need for operation are operating well. To do this, the seller is leaving a certain amount of money in each account.

Step 8 – Actions that need to be taken by the seller

The next paragraph in the agreement requires the seller to act in the best interest of the business, and not do anything that would negatively impact the daily operation of the company. This requirement continues after the sale has closed.

Step 9 – Finalization of the deal and its costs

It is important to mention in the letter of intent what might be considered the closure of the deal between the seller and the buyer. The letter should clearly state when the finalization will occur. One of the common options is to close the deal once the terms of the letter of intent are met. Another closing date might be the date of signing a formal purchase contract.

The section should also explain what costs were involved in closing the transaction. This might be after the formal purchase agreement is signed (concerns the letters of intent that are not binding) or if the LOI terms are met. The seller and buyer might split the closing costs, or the buyer might be responsible for all of them.

Step 10 – Termination of the contract

The letter should also include when the agreement terminates if the parties don’t sign a formal contract within a specified period after the signing of the letter of intent.

Step 11 – Access to the information

The buyer and any third parties they authorize should be able to access data about the business once the letter of intent is signed, according to the paragraph. The buyer might also take an oath to keep the information they access confidential.

Step 12 – The timeframe for entering the legal purchase agreement

A LOI should include conditions regarding the timeframe in which the buyer has to enter into a formal purchase agreement, approve all material provided by the seller, and give the seller the right to enter into a due diligence process as they see fit. The buyer also has the right to discuss acquiring the business with third parties, as stated in the LOI.

Step 13 – Confidentiality

Also included should be a statement that states that details of the deal between the parties are considered confidential, and only certain people can have access to the information.

Step 14 – Costs

The next section should specify the way the parties will split the costs connected with this business purchase letter. Among these costs might be legal or professional fees that are associated with the due diligence process or other processes entailed by the upcoming transaction.

One of the options for the buyer and seller is to carry their own expenses. Another option is to put the expenses on one of the parties.

Step 15 – Agreement to act in good faith

Parties to a potential business sale must agree to negotiate in good faith, and promise to be honest and diligent throughout the sale process. The information about the business can be released only with the permission of the owner, or when law requires it.

Step 16 – Exclusive rights of the potential buyer

After the letter of intent is signed, the seller and buyer agree not to negotiate with any other parties. This agreement might not be necessary if either party already has contracts in place, but it is considered very important in most cases.

Step 17 – Currency of choice and effective laws

The currency that will be used, as well as the law that will govern the contract, must also be specified in this step.

Step 18 – Validity of the provisions

The business purchase letter might also state that in the event of invalidity of one of the provisions in the document the other ones stay in effect.

Step 19 – Language and copies

The companies might operate in different countries which is why there should be a section in the letter of intent about the language. The section should state that the language of the letter of intent should be English unless both parties have a mutual understanding of another language and agree to use it.

A letter of intent can be drafted in multiple copies, all of which will have the same legal standing. The letter of intent can also be considered delivered when it is handed off, sent by mail, or otherwise made available to the intended party. The last paragraph of the letter of intent might mention that fact.

The parties can sign multiple copies of the agreement, as well as agree to use electronic means to sign. The law states that they will consider applicable, and the currency they will use should also be included in this section.

Step 20 – Signatures

The last but not least is putting signatures of the parties on the letter of intent.