June 2011

Green-Lighting the Deal: Practical Tips for Drafting and Negotiating Letters of Intent

1 min

The letter of intent establishes fundamental terms of the business transaction that are determined during early phases of negotiation. The process of arriving at key terms in a letter of intent often allows negotiations to proceed on a faster time frame by avoiding the drafting time and expense that are required for full legal documentation. It also enables the parties to negotiate high-level terms without having to take a position on the multitude of issues that a complex transaction presents. This not only allows transacting parties to minimize legal costs by saving time, but also may prevent a buyer or seller from taking a stance on a point under one deal structure that it seeks to change at a later date under a new structure. The letter of intent also serves other useful functions. For example, it is a summary of the deal that can be provided to a board of directors or legal, accounting, or other business advisors needing to review the transaction. A signed letter of intent may also assist in the acquisition of transaction financing by enabling lenders to evaluate a transaction agreed to in writing by the parties.

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