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Letter of intent


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Letter of intent

  2. 2.  A letter of intent (LOI) is a document that outlines the details of a corporation’s intention to carry out a specific corporate action. It is a letter that acknowledges the willingness of two companies to enter into business.
  3. 3.  A letter of intent differs from a contract in the sense that it is not legally binding on the parties completely and hence, cannot be enforced. However, some LOIs do contain provisions which are binding such as a non disclosure agreement or a covenant to negotiate in good faith.
  4. 4.  Letters of intent are conceptually similar to heads of agreement in the way that the latter is also a legally non – binding document, outlining only the main relevant issues of the agreement. Examples include Asset Purchase Agreements, Share Purchase Agreements and Joint - Venture Agreements.
  5. 5.  Generally, a letter of intent is issued by the Management and Legal Council of the concerned corporation. It can also be issued by a mutual fund shareholder to express his intention to invest a certain sum of money at a certain time, so that he can avail the benefit of reduced sales charges.
  6. 6.  A letter of intent is often loosely referred to as a memorandum of understanding (MOU) but the two differ significantly. A LOI essentially outlines a bilateral agreement and requires only that party which expresses the intention to carry out business with the other, to sign the letter of intent. A MOU outlines a multilateral agreement and hence requires the signature of all the parties involved.
  7. 7.  Sometimes, a letter of intent is referred to as a term sheet also, mainly because they do not vary much in legal terms but only in the way they are structured. LOI is written in a letter form and emphasizes on the intention of the parties. A term sheet is in a bullet point summary form and provides a list of the deal terms.
  8. 8. SOME EXAMPLES WHERE ALETTER OF INTENT IS USED During a merger and acquisitions process: to reveal the specific terms of the deal – whether it is a cash or stock deal. In construction and engineering: when the parties need to start working before the agreement of the formal contract terms or the formal contract price. In real estate cases where the real property in question is not listed on a multiple listing service: to officially begin the process of purchase by informing the owner of the party and other interested parties. In solicitation of government grants: to allow the agency staff to estimate the workload and plan the