What is a Letter of Intent?
A letter of intent or LOI can be used in many different circumstances and is an outline of an agreement between two or more parties before it is finalized. These letters of intent spell out all the particulars so that each company or party entering into the agreement has a better understanding of what is involved. Letters of intent are used in many different faucets of the business world and are similar to a written contract only not as binding. A letter of intent is exactly how it sounds; it is a letter that is stating an intended purpose.
While the purposes of letters of intent will vary from situation to situation here are a few examples of why a letter of intent is used:
To come up with and provide safeguards for the interested parties in the case of a potential deal falling apart.
To make clear all the points that may need to be covered so that each party has a better understanding of the potential transaction or merger.
To make a declaration that two or more parties are in current negotiations such as in joint venture or even a merger.
In the business world letters of intent are often used to prove to potential investors that a potential deal or merger may take place. Without such proof, investors may not be so willing to loan out the much needed money. While letters of intent are common in the business world there are also other instances where letters of intent are used. Some of these instances include:
Schools: Many times a school will require a letter of intent when a new club or group is forming.
Expansion or downsizing: Letters of intent are sometimes used to let employees of large firms know that the company plans on either expanding or downsizing certain departments.
Athletics: When a high school senior decides on which college he or she would like to attend and receive an athletic scholarship to do so, a letter of intent is signed. Many sports even have a national signing day to keep the playing field level.
Academic: In the academic world a letter of intent is known as a Statements of Purpose and is part of the application process.
Real estate: Often times there are properties that are not listed on the MLS or with a realtor. It is at these times that a letter of intent can be used to let the owner of the house know that a potential buyer exists and thus the process of buying and selling the house may begin.
Disabled persons: When the parents of a disabled person have passed away, courts will rely on the family's letter of intent to try to figure out what the wishes of the family are for the disabled relative.
A letter of intent is sometimes the glue that holds a potential deal together. While deals are done in the business world and other areas of life every day, usually the beginning of any deal was originally laid out in a letter of intent.
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Ever felt those times when you were entering into a transaction or major relationship but were unsure of where things would go? Or that the step you were going to take was necessary but felt that there was something missing in the whole picture, and so you needed more time?
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