• Joel Ankney - Lawyer

Do You Need a Letter of Intent for Your Deal?

Updated: May 17


A letter of intent is a legal document that allows the buyer and seller to get engaged before they decide to get married. Whether you need one for your deal depends on what you are trying to accomplish.


If you are the buyer, you might want a letter of intent if:

  • You aren't ready to sign a purchase agreement (even with contingencies)

  • You want the seller to take the business off the market

  • You want the right to conduct due diligence to decide whether to buy the business

  • You want to set a baseline of the significant terms of the deal (e.g., purchase price, payment terms, post-closing employment of the seller, etc.) to control negotiations


If you are the seller, you might want a letter of intent if:

  • You aren't ready to sign a purchase agreement (even with contingencies)

  • You want the buyer to agree to protect your confidential information and use it for limited purposes (assuming you don't have a separate Confidentiality Agreement with the buyer)

  • You want to set a baseline of significant terms of the deal to control negotiations


Most of the provisions of a letter of intent should be non-binding. The only provisions that should be binding are the exclusivity, confidentiality, and due diligence provisions. The letter of intent should clearly indicate which provisions are binding and which are non-binding (i.e., everything else). I recently experienced one deal where the buyer made the entire letter of intent binding (that's a problem because it essentially makes the letter of intent the binding purchase agreement) and another deal where none of the provisions were binding (another big problem because neither party gets any protection - why even have the letter of intent?).


In my experience, letters of intent aren't often used in Main Street deals. The parties rely on their trust for each other. They don't want to spend the money for another legal document. Many times, they sign a purchase agreement with contingencies in it, instead. Lately, however, I've noticed a trend where buyer's from bigger markets (e.g., Washington, DC metro area and California) start with a letter of intent, even for Main Street deals.

ANKNEY LAW

249 Central Park Ave., Ste. 300-43

Virginia Beach, VA 23462

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