What is Letter of Intent (LOI)?
The Short Answer
Letter of Intent (LOI) explained simply
A Letter of Intent (LOI) is like a handshake agreement in writing. It sets the basic terms of a deal before everyone gets into the nitty-gritty legal stuff. Think of it as a preliminary agreement that shows both parties are serious about moving forward. It covers things like the proposed purchase price, what assets are included, and any major conditions. While most of an LOI is non-binding, certain parts, like confidentiality clauses, are usually legally enforceable.
Real-World Example
The Coffee Shop LOI
Imagine you want to buy a coffee shop. You and the seller agree on a price of $200,000. You also agree that the sale includes all the equipment, the customer list, and the current lease. You write up an LOI that states these main points. It also says you have 30 days to do your due diligence, like checking the coffee shop’s books. This LOI isn’t the final sale document, but it locks in the basic understanding so you can both move to the next steps.
Why this matters
An LOI is important because it gets everyone on the same page early on. It saves time and money by making sure the big picture items are agreed upon before lawyers start drafting complex contracts. It also shows commitment from both sides, which helps build trust and momentum in the deal.
An LOI is a critical step. It sets the tone and expectations for the entire deal. Make sure the key terms are clear, even if it’s not legally binding yet.
An LOI is a critical step. It sets the tone and expectations for the entire deal. Make sure the key terms are clear, even if it’s not legally binding yet.
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