How do you let other companies know that you can fulfill their business needs? Letters of intent are the perfect solution when starting the conversation and negotiating the terms of a deal. However, a poorly drafted document can result in disputes, miscommunications, and other business disruptions.
Avoid this scenario entirely and use the guide below when writing a letter of intent:
What Is a Written Letter of Intent?
A written letter of intent, also known as an LOI, is a legal document that parties use to express a commitment to a transaction while specifying terms and conditions for negotiation. LOI-specific terms include non-binding agreements, nondisclosure agreements, and confidentiality agreements. They are more informal than business contracts but less formal than business letters.
What Is the Purpose of a Letter of Intent?
The purpose of a letter of intent is to start the discussion about a transaction. It indicates one party’s serious commitment to procuring the final contract. It also documents the meaning and intent of the transaction’s inception.
Let’s take a closer look at the three ways a letter of intent serves its purpose:
Purpose 1. Initiate a Business Transaction
LOIs indicate that two or more parties are about to embark on a business transaction . These transactions typically involve mergers, acquisitions, purchase agreements, joint venture agreements , and employment relationships. Essentially, it’s a formalized and professional way to let a company know that you’re interested in fulfilling their needs.
Purpose 2. Set a Negotiation Point
LOIs also capture the meaning and intent of the transaction. You can think of them as additional documentation that supports the terms and conditions before the final agreement. After negotiation discussions, both parties may agree to use the LOI as the formal agreement or draft a separate contract entirely.
Purpose 3. Protect Both Parties
LOIs often contain provisions, such as nondisclosure agreements that require both parties to keep the transaction confidential. They may also include conditions such as exclusivity, which prohibits sellers and buyers from “shopping around.” Depending upon your industry and business deal, you can have as many provisions as necessary to protect your rights and interests.
Different Types of Letters of Intent
The type of LOI that you’ll use depends upon the transaction type. However, the good news is that there are virtually limitless options.
Here are the different types of letters of intent:
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Type 1. Business
Business LOIs announce a tentative agreement between two companies. This document lays out the key terms upon which both parties agree to close and reach a final deal.
Type 2. Employment
Employment LOIs establish a job seeker’s interest in working for a company. They’re different from cover letters in that they usually focus on the employer rather than a specific job.
Type 3. Education
Education LOIs are part of the application process that confirms a prospective student’s interest in attending an educational institution. For example, schools can approach athletes with LOIs regarding potential positions as team members.
Type 4. Family Court
Family court LOIs are for parents who wish to determine guardianship and provision issues if they die before their children turn the age of majority. Although they are not legal documents, prospective guardians can use them to determine the children’s future in family court.
Type 5. Grants
Grant LOIs inform agencies about the amount of work required for the project and how the individual or organization plans to use the grant money. It’s an excellent way for grant writers to “throw their hat in the ring.”
Type 6. Real Estate
Real estate LOIs indicate a prospective buyer’s interest in purchasing a property. You can also use them to detail rent and other tenancy requirements between landlords and prospective tenants.
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How to Write a Letter of Intent – Step by Step
Writing a letter of intent takes finesse. A measured and carefully planned approach will result in a more comprehensive and well-structured document. Avoid making any missteps since doing so can negatively impact the final result.
Take the following steps when writing a letter of intent:
- Step 1 . Select the correct type of LOI
- Step 2 . Determine how you want to format your document
- Step 3 . Research the company you’re soliciting
- Step 4 . Conduct an analysis that determines why you’re a good fit
- Step 5 . Create an introduction that lets them know why you’re interested
- Step 6 . Use compelling language that helps your LOI stand out
- Step 7 . Highlight your strengths in the document
- Step 8 . Close your document with a call-to-action
It’s common practice to sign and email letters of intent to your prospect. However, you could create a printed packet at your local printer to send an attractive, professional physical copy.
What Is the Format for A Letter of Intent?
Writing and submitting a letter of intent is a straightforward way to indicate interest. While it may feel awkward to just make a cold offer, this practice is standard, and your competitors are actively engaging in the process this very moment. Do not be afraid to put yourself out there!
Here is an LOI format that you can use to put your best face forward:
Part 1. Greetings & Salutations
You’ll want to start by formatting your letter of intent like a regular business letter. Place the recipient’s address and letter date at the top. Open with a greeting, such as “Dear Ms. Smith” or “Dear Sir or Madam,” as a sign of formality and respect.
Part 2. Introduction
The next step is to let the recipient know why you are writing to them. It’s not uncommon to open this section with parties’ names, contract purposes, and other recitals. You can use more illustrative language in this section, or at least more so than you would in a standard business contract.
Part 3. Proposed Terms
The main body of your letter of intent will include your proposed terms and conditions. You should take a more formal approach to this section. Use contractual language, formatting, and terminology.
Terms to propose may include:
- Overview
- Transaction structure
- Timeline
- Due diligence agreements
- Non-binding agreements
- Confidentiality agreements
- Other terms as relevant
Every industry, geographic area, and company size has unique and nuanced needs that are not always apparent. Speak with business lawyers to help you draft LOIs and business contracts , especially for important or complicated transactions.
Part 4. Closing Paragraph and Signature
You can close your LOI with another illustrative call to action. Let the company know how they can move forward with your offer if interested. Don’t forget to leave blank signature lines for both parties and sign your agreement to let them know you are sincere, professional, and detail-oriented.
Who Writes a Letter of Intent?
Almost any business could write a letter of intent when expressing interest in a project, position, or contract. An LOI is a great way to let your network know that you’re making a serious commitment to fulfilling their unique needs. For example, an entrepreneur that wants to buy a car dealership can write an LOI to solicit the selling party.
A letter of intent can send the right or wrong first impression to prospects. Instead of leaving your next significant transaction to chance, hire business lawyers to write a letter of intent. They will ensure it conforms to local laws while side-stepping legal mistakes entirely.
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