A letter of intent is document summarizing an agreement between two or more parties before the deal is finalized. Letters of intent are like Memoranda of Understanding. A letter of intent may refer to Asset Purchase Agreements, Share Purchase Agreements, Joint Venture Agreements and or any other deal which aim relates to a large financial deal.
A letter of intent are similar to written contracts, but they are usually not legally binding on the parties. They may, however, contain provisions that are binding, like non-disclosure agreements, or a “no-shop” provision promising exclusive rights to negotiate. This letter is formed in good faith and in spite of not being legally binding, is usually followed by both parties as it outlines the basic points of a contract.
A letter of intent is written in order to:
- Clarify the key points of a transaction for the convenience of the parties
- Officially declare that the parties are negotiating
- Provide safeguards in case a deal collapses