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A letter of intent is a formal document outlining one's intentions for a specific action, such as applying for a job or program or initiating a purchase. It could also be used to clarify specific points in a business transaction. A job candidate might send a letter of intent to a business if they wanted to work for the company, but there wasn't a specific job they were applying for. The candidate might submit a letter of intent along with a general application.
The letter of intent shows interest in the other party and deals with them in a respectful and professional manner. It states your intentions without actually entering into an agreement regarding the business arrangement. When a letter of intent is used between businesses, it allows the individual parties to define their relationships and their future plans without involving lawyers and generating significant legal costs. Though the document isn't legally binding, it is a show of good faith.
Other Names of a Letter of Intent
A letter of intent is sometimes referred to as:
- Terms sheet
- Framework letter
- Letter of interest
- Intent to purchase letter
- Assurance letter
Steps to Write a Letter of Intent
Here are the basic steps you should follow to write a general letter of intent that could be used to clear an intent to purchase or to plan a business arrangement:
- Determine the Name of the Recipient. While there may be situations where you need to include a general greeting, like if you're sending the letter to multiple people, in most cases, it's best to send your letter of intent to a specific individual. This will increase the likelihood that the letter will reach the right person.
- Choose the Best Greeting. The most common greeting is "Dear Mr./Ms. Last Name." If the person you're sending the letter to has a professional title, such as Professor or Dr., you should use that instead.
- Write the Body. This part of the letter will vary depending on the purpose of your letter of intent. In general, the first paragraph should state the purpose of your letter. If you're purchasing real estate or a business, you should state the terms that are proposed for the purchase. If you're expressing interest in working for a company, you should highlight the qualifications that would make you ideally suited for a job at the company. If you're sending a letter of intent to accept a scholarship, you should express your appreciation and enthusiasm in an appropriate, professional manner.
- Include a Professional Closing. Always use a professional closing. "Sincerely" or "Yours truly" often work well. Write or type your name under the closing.
Types of Letters of Intent
Here are a few specific examples of different types of letters of intent:
- Purchase of Real Estate, Business, or General Property: You can use a letter of intent to state your intention to purchase commercial or residential property or a business. The letter should specifically state that it isn't an official purchase agreement and that the terms and conditions of the business transaction are to be stated in the actual purchase agreement that must be agreed upon by all relevant parties.
- Scholarship Acceptance: A student could send a letter of intent to an institution or organization when accepting a scholarship. The letter should express appreciation for the scholarship and excitement for the opportunity.
- Graduate School: If you intend to submit an application to attend a specific graduate school, you could send a letter of intent to that university. Some schools may even require a letter of intent as part of their application process. The letter should let the recipient know that you've submitted your application and list the graduate program for which you're applying.
- Acquisition: This type of letter of intent is similar to the one that you would use when purchasing a business. However, it should be marked as confidential. As a sender, you may want to include the basic terms of the deal in addition to a nonbinding statement about the preparation of the agreement and procedures for negotiation.
- Employment: You could send a letter of intent to express interest in working for a company, even if there isn't a specific opening available. The letter can state the type of position you're interested in or whether you're looking for an opening in a particular department.
Benefits of a Letter of Intent
The following are the benefits of a letter of intent:
- Outlines Goals: An LOI aids both parties in outlining their goals and expectations for a future transaction. It gives the early discussions a well-structured framework, ensuring everyone is on the same page. It offers the early discussions a well-structured framework, ensuring everyone is on the same page. This is beneficial since it makes certain that everybody is on the same page and working closer to the same goal.
- Assists in Negotiation: It outlines the essential parameters of the agreement, enabling parties to pinpoint points of agreement and dispute. Narrowing the focus of the negotiation to the most important topics helps speed up the process.
- Provides Legal Protection: A letter of intent contains several legal clauses to protect both parties throughout the negotiation process.
- Encourages Settlement in Good Faith: Even though a letter of intent is typically not legally enforceable, it frequently includes a clause promising that both parties would negotiate a settlement in good faith. This commitment can promote trust and cooperation in negotiations.
- Saves Time: Companies can save time and money by creating a thorough LOI before moving forward with a formal contract. If the parties can come to an understanding of the key points outlined in the LOI, the time-consuming and expensive process of drafting a comprehensive contract can be avoided.
- Conducts Due Diligence: The process of due diligence is frequently started with the LOI. It permits the buyer or recipient of the proposal to look into the company, assets, or property in more detail before committing to the deal in writing.
- Includes Binding Clause: Although the LOI is often non-binding, it can contain some binding clauses, such as exclusivity clauses that forbid the seller or landlord from negotiating with anyone else for a predetermined time.
- Allows Customization: The LOI is a versatile document that can be modified to meet the particular requirements of the transaction. Parties are free to add restrictions and clauses specific to their circumstances.
- Maintains Records: It provides written evidence of the negotiation process, which is helpful if any controversies subsequently emerge. The final contract can be used as a point of reference.
- Incorporates Confidentiality Clause: The main advantage of a letter of intent is the inclusion of clauses that are advantageous to both parties. For instance, parties frequently include a confidentiality clause in a letter of intent. This confidentiality provision will ensure that any confidential information given will be safeguarded even if negotiations do not result in an agreement.
- Grants Exclusivity Benefit: Additionally, exclusivity-allowing terms may be included in letters of intent. As a result, early in the negotiation process, parties cannot negotiate with one another. This is advantageous since it eliminates possible negotiating chips and guarantees that parties won't hastily include particular contractual clauses in response to outside pressure.
- Functions as a Memorandum of Understanding (MOU): An LOI can occasionally serve as an MOU, which is a preliminary step to a more official agreement. MOUs are employed by parties who want to express their commitment to examining the potential for future partnership.
Letter of Intent vs. Cover Letter
Admittedly, letters of intent can be similar to cover letters when used for the purpose of finding a job. However, there are some differences. A letter of intent:
- Is more focused on the company than a specific role
- Speaks in more general terms about the candidate's skill set
Cover letters, on the other hand, tend to be
- Focused on the specific job
- Discuss the candidate's skills as they relate to that job
Letter of Intent Sample for Asset Purchase (Non-Binding)
This letter of intent (“Letter of Intent”) sets forth proposed terms of [BUYER NAME] (“Buyer”) purchase of all assets related to [ASSET NAME] and you (“Seller”). Buyer and Seller are referred to collectively as the “Parties.”
This letter does not address all matters upon which agreement must be reached for the proposed transactions to be consummated. The Parties intend to execute a definitive Asset Purchase Agreement and other necessary documentation (the “Definitive Agreements”) at a later date.
The Parties agree that this Letter of Intent is intended as only outline of certain terms and should not be considered binding on both Parties.
In general, the proposed transaction would be as follows:
- Execution Date. The Parties intend to execute an Asset Purchase Agreement no later than [DATE]. The Asset Purchase Agreement shall be subject to the conditions outlined in this document.
- Subject Property. The subject property of this Letter of Intent shall be the assets, inventory, equipment, goodwill, and contracts, including but not limited to [ASSETS] (the “Purchased Assets”). A list of the Purchased Assets is attached as Exhibit “A.” Buyer will not assume any debt or other obligations of Sellers.
- Definitive Agreements. Seller and Buyer will negotiate in good faith a definitive Asset Purchase Agreement and certain ancillary transaction documents, such as an assignment of contract (the “Definitive Agreements”).
- Due Diligence. During the [DUE DILIGENCE PERIOD TIMEFRAME] day Due Diligence Period, Buyer and his representatives shall have full opportunity to review the business, properties, affairs, prospects, books, and records related to the Purchased Assets and to obtain information that it deems relevant from the management, bankers, lawyers, accountants, and other consultants of Sellers. Sellers shall furnish to Buyer such financial and other data and information as is requested for the completion of Buyer’s due diligence. Buyer agrees to keep confidential and not to use for any purpose any confidential information provided by Sellers.
- Suitable Financing. Execution of the Asset Purchase Agreement is contingent on Buyer’s ability to acquire suitable financing. Buyer retains the right to make the final determination as to the suitability of financing.
- Expenses. Other than the fees associated with the escrow agent, it is expressly understood that Buyer will not be responsible for any transaction-related expenses incurred by Sellers, and Sellers will not be responsible for any transaction-related expenses incurred by Buyer. All legal, accounting, due diligence, and other costs and expenses incurred in connection with the closing of the transaction shall be paid by the party incurring such expenses.
- Confidentiality. Sellers and Buyer agree that, prior to the closing date, any public announcement relating to the proposed transaction must be approved by both parties prior to release to the public.
- Miscellaneous. Pending execution of a mutually acceptable Definitive Agreements, Sellers will conduct its business in the ordinary course.
If the foregoing reflects the present intention of, and is generally acceptable to you, please execute and date the enclosed counterpart signed by Buyer and return such executed counterpart to the undersigned.
Very truly yours,
Tips for Writing a Letter of Intent
Here are some tips you can use to help you write a letter of intent:
- Use an Appropriate Format. Use a business letter format that includes both parties' contact information and the date the letter is created.
- Include a Clear Subject Line. If you're sending your letter via email, include a concise subject line that states the purpose of the letter. If you're sending the letter in this way, you don't need to include contact information at the top of the letter for both parties. You can place your contact information under the signature at the bottom.
- Proofread Carefully. Read the letter of intent closely to look for typos and grammatical errors.
- Use a Professional Greeting. Try to send the letter to someone specifically and professionally greet them. If the letter is being sent to several people, you can use a general greeting like, "To whom it may concern."
- Use Short Paragraphs. You should keep your letter brief with short paragraphs to increase the likelihood that the recipient will read the letter in full. This is particularly true if you're sending a letter of intent expressing your interest in a job at a company.
- Research the Company. If you're writing a letter of intent to apply for a job at a company, research the company in advance to better understand its mission and culture. This can help give you a sense of how you could potentially add value.
- Use Bullet Points. Consider using bullets to highlight your qualifications for a job or key points you want to emphasize in a business deal. Bullets will help to draw attention to this information and ensure it isn't overlooked when the recipient scans the letter.
- Keep Your Letter Short. Your letter of intent should never be longer than one page.
Letter of Intent Templates
- Letter of intent for a job
- Letter of intent for a job opening
- Letter of intent for a job in the same company
- Letter of intent for a job application
- General letter of intent
Final Thoughts on a Letter of Intent
A letter of intent is only a preliminary record and serves more often than not to clarify the parties' desires and open discussions. Except for any precise conditions that can be expressly detailed to be binding, it isn't a settlement that is enforceable in a courtroom. A robust and well-drafted letter of intent can build the foundation for a fruitful and positive agreement. Still, it's far more important to proceed with in-depth negotiations and a formal settlement, such as an agreement or definitive agreement, to ensure all conditions are documented and legally enforceable.
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