This week’s question for our “Ask Us Anything” series is one we get asked all the time.
"What should I write in my letter of intent?"
Write down the terms you have actually agreed with the seller, and then add the handful of clauses that protect you while you investigate. A letter of intent for a business purchase usually runs two or three pages and covers ten things.
The parties and what is being bought. Name both sides, and say whether you are buying the shares of the company or its assets. That one line shapes everything that follows.
The price and how it is paid. A range rather than a single number at this stage, and a sentence on the structure — how much on closing, how much held back, whether any of it is a vendor take-back note or an earnout.
Exclusivity, with a date on it. The seller agrees not to shop the business or entertain other offers for a defined period. Give the period a firm end date rather than describing it as reasonable.
The due diligence period and what the seller will produce. How long you have to investigate, and the main categories of document you expect to receive.
The conditions. State that the deal is conditional on satisfactory due diligence and, where relevant, on financing. These are your reasons to walk away, and they only exist if you write them down.
The deposit, if there is one. How much, who holds it, and precisely what happens to it if the transaction does not close.
Confidentiality. Both sides agree not to use or disclose what they learn during the process.
Who pays the costs. Ordinarily each party carries its own professional fees, whether or not the deal completes. Put the split in writing so it cannot be reopened.
A target closing date. Realistic rather than optimistic, since the date you write becomes the one you are measured against.
An expiry date for the letter itself. A date by which the offer lapses if a purchase agreement has not been signed.
Two of those get left out far more often than the rest, and both are cheap to include.
The first is a clear statement of which clauses are meant to bind you. Confidentiality, exclusivity and costs are normally enforceable while the rest of the document is not. Set out that carve-out expressly, and list the clauses it captures.
The second is the expiry date. Without one, a letter of intent can sit in a drawer for months and reappear as evidence of what you agreed long after the numbers have moved.
For the order to settle these terms in, and why each one is worth arguing about, our guide to how to write a letter of intent for a business purchase works through the whole sequence.
This answer is general legal information, not legal advice, and it cannot account for the facts of your situation. Always speak with a lawyer before you act on it.
P.S. If a question like this one has come up in your own business, schedule a complimentary discovery call with our firm and we will walk through it with you.
