Letter of Intent

You want to buy a business unit from a third party and they have asked you to sign a letter of intent. Well, it is common that, when negotiating the transfer of a business unit or the purchase of a company, this document is signed.

 

Concept

The purpose of the letter of intent is to record the preliminary agreement between buyer and seller on the essential terms of the transaction they are negotiating.

 

Minimum Content

The content of a letter of intent or LOI (as the letter of intent is also known) usually includes the following:

• Identification of the parties and description of the business to be concluded.

• The structure of the transaction. That is, the steps that will be followed until the transaction is completed. For example, conducting a due diligence by the buyer (the analysis of the company or business to understand the financial statements, possible debts, employees, contracts, contingencies...), the deadline to carry it out, etc.

• Confidentiality commitment. That is, the buyer will not disclose information about the transaction or the documentation provided.

• Exclusivity. This means that the seller grants the buyer exclusivity for the transaction for the agreed period.

 

Tips

Sometimes, agreements may be included that imply there is an agreement on the object and the price or that the sale will take place if a certain condition is met (for example, if the seller provides documentation). In these cases, the seller may demand compliance, and if it is not met, may claim compensation. To avoid this, do the following:

• Make sure the document only commits you to consider the possibility of making the purchase.

• Set a deadline for negotiations and agree that both parties can terminate them early with a simple notice, without citing any reason or paying any compensation.

• Ensure that there is no obligation to purchase, even if certain conditions are met (as mentioned earlier).

 

Our professionals will advise and assist you throughout the process of purchasing a business branch, including any preliminary steps such as the letter of intent.