How much detail should be in a business acquisition Letter of Intent (LOI)?
The document that a business buyer submits to a seller to signify interest in acquiring a business is usually a Letter of Intent (LOI). A LOI is a non-binding expression of interest and seeks to gain a general understanding between a business buyer and seller on the primary deal terms. While non-binding, the LOI is, in essence, the offer. The thoroughness of LOIs vary greatly. Some buyers and business brokers use a basic LOI that is limited to saying something like “This letter is a non-binding expression of interest for John Doe to acquire ABC, Inc. John Doe wishes to conduct due diligence, and if there are no adverse findings, then he will formalize his interest in a binding purchase agreement.” I strongly advise seller clients against agreeing to such a simple, vague LOI.
I recommend that as many of the anticipated deal terms as possible be outlined in a LOI. Without covering terms in more detail there is a significant risk that the parties may develop substantially different expectations, leading to the deal breaking down and terminating after due diligence is completed and binding purchase agreement negotiations begin.
This list isn't comprehensive and can vary from one transaction to another, but the primary take-away should be that more detail on significant deal terms and the business sale process will help prevent misunderstandings and get a business sale transaction to the finish line.
A letter of intent for business acquisition should is an official way of allowing the seller to know about his delight in purchasing the calling and its assets. Letter of intent is of immense significance when doing a business transaction. Do you know- why? Because it helps both buyer and seller to find oneness before preparing a comprehensive business agreement. It includes some key terms and conditions that mitigate the possibility of ambiguity which is obligatory when the aim is to build a clear understanding between the concerned parties.