What is the letter of intent?
A “Letter of Intent” is a non-binding declaration of intent that states that two or more parties are close to a deal. Although there is no binding effect with a Lol, details such as clauses or other agreements are very likely to be binding for a possibly agreed duration.
A declaration of intent states that a contract is to be concluded. If you don’t take it too seriously, you can also say that the LoI is a negotiation protocol or a binding preliminary contract. A letter of intent is only not dangerous if it contains a so-called “No binding Clause”. The majority of the contracts are used when a business acquisition is pending. It is used to express the interest that is attached to an implementation.
What are the different elements?
According to whicheverhealth, there is special content that a LoI is supposed to capture, in detail these are a strategic concept, the financing and distribution techniques of a company, which will then also be specified later in the partnership agreement.
The contract also states who will be hired as managing director and how much he should earn. One point also includes the possible financing of credit and loan agreements, as well as exit regulations. All the details on the points mentioned will be negotiated later in the correct contracts.
The negotiations should primarily not be about specific regulations, but about a sound sense of proportion. However, certain transactions should already be recorded and economic ideas of a company can also be mentioned.
Who needs a letter of intent?
The selling process of a company is often a lengthy affair. This results in multi-digit costs and so a letter of intent can be important not only for a seller, but also for the buyer.
The LoI is only a kind of preliminary contract that is not legally binding, but it should also show a certain seriousness and already contain important key data. A LOI can be of immense importance for both parties and there are several reasons for this.
The most important point with the LoI is always the status of the negotiations. If misunderstandings arise later, the Letter of Intent can be used to create a consensus and to get rid of errors. Planned projects should therefore be precisely written down and defined in any case.
Another factor is the schedule to be followed, which must be established. If both parties agree to a certain date, this can help to realize a project on time. This is based on experience, because the longer such projects take, the more likely it is that they will fail in many cases.
The reasons for this are manifold, primarily this is a tactic on the buyer’s side or over time there is indecision or even the intention to resign.
In such negotiations, things usually come on the table, such as intimate company data, so that there is no need to fear misuse, a letter of intent is extremely important, because claims for damages can be asserted in the event of violations, which can run into the millions.
These components should have a LoI:
- The exact designation of all contractual partners
- Interest in carrying out the transaction
- A summary of all interview results
- Who is buying what here?
- The exact schedule to be followed
- Powers of attorney
- Conditions, deadlines, financing structure
- Confidentiality Obligations
- Right to surrender or destruction of secret documents
- The reference to the lack of binding effect
- Reasons for ending the negotiations
- Rules for reimbursement of expenses for experts, auditors and lawyers
- Exclusivity clause
A letter of intent contains joint agreements that are more binding than verbal agreements.
Who needs a letter of intent?
There are different areas where a LoI can be important. This can be useful in the business world as well as when applying to a university. An applicant can not only present his personality through him, but also demonstrate his eloquence.
If you want to write an application and use a LoI, you should pay attention to a few things, because such a letter must have specific requirements. The first step is to research the company, so researching the website can prove to be wise. If nothing about it is found on the Internet, the next step is a phone call. In this way, required data of a company can be found. If an application is not directed to a single person but to a whole team, it makes sense to address each individual. This not only makes an impression, it is noticed that a certain amount of research has taken place.
In advance, it should be noted exactly what should be in the personal letter of intent. That goes from personal information, past achievements, to challenges that have been overcome. It can contain both what can be expected and what can be achieved.
In the case of an application letter of intent, the introduction comes first, it includes the job being applied for and where the current job or school position is. Occupational fields that arouse special interest can be addressed and the date of availability is a good introduction.
This type of LoI should be written very personally, especially if it is a company where an application is to go, a good ability should be emphasized in the writing.
As a last point, you should definitely insist that a personal interview is desired. The letter should therefore contain all the contact addresses at which the person can be reached. It is extremely important to pay attention to correct grammar and spelling, and all attachments should be checked again against.
Everything should have a round character and therefore the letter of intent should not be sent until it meets the requirements.
Forms of LoIs
Overall, a distinction is made between different forms of LoI – these include, for example:
- The soft LoI: This indicates in particular that you usually only summarize the status of the negotiations and justify the non-binding intentions of the contractual partners. There is no obligation for the contractual partner to conclude a purchase contract.
- The hard LoI: In the hard LoI, at least some legally binding concrete statements are made, such as about a sales price.