Acquiring a business usually involves several steps. At the preliminary stage, once an interested party has identified the entity they wish to purchase, the parties will often prepare a letter of intent (LOI). Although a letter of intent is not a binding contract, this document is an important part of the business acquisition process. If you are preparing to procure or sell a business, you may be wondering: What should I include in my business purchase letter of intent?
What is a Business Purchase Letter of Intent?
A business purchase letter of intent, or LOI, is an important document used by a buyer and seller to come to an agreement on the terms of an entity’s purchase. The document will outline important details of the acquisition. This LOI is not a contract, but there are portions of it that may have legal implications.
What Should I Include in My Business Purchase Letter of Intent?
The parties should address certain key elements in an LOI. For example, terms such as the purchase price, any potential adjustments to the price, how much will be placed in escrow, how the transaction will be arranged, due diligence, and the expected time frame for the sale should be included in the document.
Negotiating and Your Letter of Intent
Generally, the LOI is a starting point for negotiations. Therefore, the information included in the letter of intent document will often serve as a foundation for the business purchase agreement. If you are the buyer, you will want to use language and terms that convey your intent to proceed with the process while building in as many protections as possible. This typically involves using broad and flexible terms. On the other hand, as the seller, it is generally in your best interests for there to be language that clearly defines the purchase price and other essential details. Therefore, if you are the selling company, it’s usually to have the LOI be as detailed and specific as possible.
The LOI and the Exclusivity Period
Business acquisition negotiations typically involve the buyer entering into an exclusive arrangement with the seller. When the proposed deal enters the exclusivity period, the seller will only be considering the buyer’s offer. Before this time, a seller can consider multiple bids. The exclusivity period provides the buyer with time to conduct due diligence and for the parties to negotiate the terms of the sale.
Is the Letter of Intent Binding?
LOIs are not binding in and of themselves. However, they do serve as a representation of the buyer’s and seller’s good faith. Additionally, some parts of the agreement may have legal implications. For example, as mentioned above, the parties may want to agree to maintain exclusivity during negotiations. As part of exclusivity, the buyer and seller may want to agree to keep information confidential and include a non-disclosure agreement.
If you are buying or selling a business, having a clear and comprehensive LOI is crucial. The terms you include can set the tone for your entire business purchase agreement. Additionally, you want to make sure and include provisions that protect your interests.
The best way to draft a comprehensive and effective business purchase letter of intent is by working with an experienced Florida business attorney. Your business lawyer can help you develop business purchase LOI language that supports your goals and protects your interests.
Contact an Experienced Florida Business Attorney
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with commercial leasing, business, and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.