Definition
A letter of intent is a written statement of one party’s tentative agreement to conduct business with another. The main elements of a potential deal are described in the letter. LOIs are frequently used in significant corporate transactions and have a similar structure to term sheets. However, a substantial distinction between the two is that while term sheets are a listicle, LOIs are delivered in letter styles.
Purpose of a Letter of Intent (LOI)
Common goals of a letter of intent are:
- To enable parties to swiftly plan fundamental terms before investing significant resources in negotiating finalized due diligence, obtaining third-party approvals, and other issues
- To formally state that negotiations are ongoing, as in a merger or joint venture proposal
- To offer protections in case, a deal fails during negotiations
- To confirm specific concerns with payments made on someone else’s behalf (e.g., credit card payments)
