What does a LOI stand for?

When two people say they want to do business together, they send each other a letter of intent (LOI). The letter lays out the main points of a possible deal. LOIs are similar to term sheets in what they say and are often used in big business deals. One big difference between the two, though, is that LOIs are written like letters, and term sheets are written like lists.

How to Read and Understand a Letter of Intent (LOI)

Let’s say two people want to make a deal but don’t know all the specifics yet. An LOI can help them work out the big picture. Most of the time, LOIs have terms that say the deal can’t go through until a certain date or until one or both parties can get some money.

LOIs are usually meant to be non-binding because they talk about possible parts of deals that haven’t been finalized yet.

LOIS can be ongoing. One party can send a LOI, and the other party can either back it up with a slightly different LOI or write a whole new document. At the time that both sides meet to make the deal official, there should be no surprises for anyone.

A lot of letters of intent (LOIs) come with non-disclosure agreements (NDAs). These agreements spell out the parts of a deal that both parties agree to keep secret and the parts that can be shared with the public. A lot of LOIs also have “no-solicitation” clauses that say one party can’t hire workers from the other party.

A letter of intent is usually written and signed while talks are still going on between the parties. This means that the final terms of a deal may differ from what was agreed upon in the letter of intent. Both sides do their research before doing business with each other. Before signing a letter of intent, it is smart for a business to do their research.

Why you need a Letter of Intent (LOI)

People can use letters of desire for a lot of different things. Parties can use an LOI to lay out some of the most important terms of a deal before they discuss and agree on all the smaller details. Another use of the LOI is to show that two people are in talks about a deal, like a merger or a joint venture (JV).

In general, LOIs try to do the following:

• Make it clear what important parts of a deal need to be discussed.
• Keep everyone involved in the deal safe.
• Say what kind of deal it is, like a partnership or a union between two businesses.

How to Use a Letter of Intent (LOI)

Most of the time, a company’s legal team writes LOIs for business deals. They spell out exactly what the company plans to do. In the process of mergers and acquisitions (M&A), LOIs spell out whether a company wants to buy another business with cash or stock.

Actually, letters of purpose aren’t just useful in business. For instance, parents might use them to tell their kids what they expect from them if both of their parents die. Even though LOIs aren’t formal papers like wills, the judges in family court who decide what happens to the children in these situations may look at them.

People who want to get government funds for high school sports that are in high demand also use LOIs. These people often write LOIs to say they are committed to going to certain schools or universities.

Conclusion

• There is a paper called a letter of intent that says one party wants to do business with another.
• This type of letter usually lays out the main points of a possible business deal.
• If two people want to make a deal but don’t want to get into the specifics just yet, a LOI can help.
• An LOI lists the parties involved, as well as any conditions, requirements, or deadlines.
• There are often non-disclosure agreements (NDAs) and no-solicitation clauses in letters of intent (LOIs).
• A letter of intent is not only used in business but also in other situations where two people want to work together or make a deal.