Letter of Intent

A Letter of Intent (LOI) is a document that details the initial understanding and key terms between parties prior to finalizing a formal agreement. It acts as a foundational framework for a future contract, indicating a serious intent to negotiate the specifics of a transaction. Although typically non-binding, an LOI may contain binding elements, such as confidentiality or exclusivity clauses, to safeguard the parties during the negotiation process.

In the realm of business, LOIs are crucial for intricate transactions. They are frequently employed to initiate discussions for mergers and acquisitions, joint ventures, and significant real estate transactions. This document aids in aligning all parties on fundamental terms before they invest substantial resources in due diligence and the creation of a final contract.

The use of LOIs is not limited to corporate finance. They are also used to obtain government grants, by educational institutions for student admissions, and even by athletes making commitments to universities. In each scenario, the LOI serves to formalize intentions and establish a clear, preliminary framework for the forthcoming agreement.

While the details of an LOI can differ based on the transaction, most adhere to a standard format to ensure that all parties have a mutual understanding. This structure outlines the critical components of the proposed deal and prepares the ground for formal negotiations.

Although both documents present a preliminary agreement, their legal implications and common uses vary significantly.