A letter of intent (LOI) is a written document that outlines the preliminary agreement between two or more parties regarding a potential business transaction or partnership. It functions as a formal declaration expressing the parties' intention to proceed with negotiations and eventually enter into a binding agreement.
Typically, the LOI serves as a starting point for further discussions and acts as a roadmap for finalizing the details of the transaction. It helps to establish the key terms and conditions, as well as the scope and structure of the potential agreement. While it is not legally binding in itself, it often sets the groundwork for a future legally binding contract.
Within the LOI, the parties generally outline the purpose and nature of the partnership, including specific objectives, financing arrangements, and potential responsibilities. Additionally, it may address issues such as intellectual property rights, confidentiality, termination clauses, and dispute resolution mechanisms.
The letter of intent is often employed in a variety of business contexts, including mergers and acquisitions, joint ventures, real estate transactions, and employment agreements. It provides a framework for both sides to collaborate, negotiate, and perform due diligence before proceeding with a final agreement.
It is important to note that while an LOI is a valuable tool for initiating negotiations, careful attention is required to clearly communicate the non-binding nature of its contents, ensuring that all parties understand that a final agreement is subject to further negotiation and documentation.
