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What is a letter of intent?

A letter of intent is a document used to provide the parties to a proposed transaction with the opportunity to reach an understanding on the key business terms and to lay out the general framework for the final binding agreement of purchase and sale (the “APS”).

What are the main advantages of a letter of intent?

A letter of intent assists the parties by:

  • providing some assurance that the parties possess a legitimate interest in seeing a deal through to closing
  • setting the ground rules for negotiations
  • potentially saving a significant amount of time and money by identifying preliminary issues and allowing them to be resolved prior to negotiating the finer points of the APS, thereby enabling such negotiations to be more focused and straightforward, and the APS to be reached more quickly
  • maintaining the initial momentum motivating the deal so the parties can determine if they will likely reach a “meeting of the minds”, and become committed to the proposed transaction without imposing all of the binding obligations and liabilities of a full APS on them
  • creating a feeling of moral obligation to see the deal through to conclusion, providing order and structure to negotiations, avoiding ambiguity and other problems which can arise through relying solely on verbal communications
  • providing safeguards (such as the protection of confidential information and the return of deposit monies) should the negotiation process break down and the proposed transaction fail
  • providing the purchaser with the appropriate means by which to properly conduct its due diligence prior to the finalization of an APS
  • not creating binding obligations for the parties until the signing of the APS, except for a few specific matters (such as confidentiality, termination and exclusivity/”no shop” provisions)

How can Tierney Stauffer LLP help?

The corporate lawyers at Tierney Stauffer LLP are experienced in carefully and thoroughly advising on, drafting and negotiating letters of intent.

Please do not hesitate to contact me for more information on how I can assist with your letter of intent as the first step in the purchase of the business you have identified.

John S. Grant, Q.C

Senior Legal Advisor – Business Law Group

Disclaimer: This article is provided as an information resource. This article should not be relied upon to make decisions and is not intended to replace advice from a qualified legal professional. In all cases, contact your legal professional for advice on any matter referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. Please note that this information is current only to the date of posting. The law is constantly changing and always evolving.

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