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A Letter of Intent (LOI) can be used for various purposes and scenarios. For mergers and acquisitions, LOIs are often used as a preliminary agreement between the buyer and seller before the final purchase agreement is signed.
💼 If you plan to buy or sell a website or online business, download our free Letter of Intent template in Microsoft Word format (please read the disclaimer before using the document). This template was drafted by an attorney for use with the potential sale of a website or online business. We recommend having your own attorney review the template to ensure it meets your specific needs.
What Is a Letter of Intent?
A Letter of Intent (LOI) expresses a potential buyer’s interest in purchasing a website or online business. It outlines the basic terms and conditions of the proposed deal, including the purchase price, due diligence period, closing date, and other key elements of the transaction.
The LOI establishes a preliminary agreement between the buyer and the seller before the final purchase agreement is signed. An LOI is used to show the seller that the buyer is serious about the purchase, and it helps to streamline the negotiation process by addressing major points early on. However, it’s important to note that an LOI is typically non-binding, meaning it doesn’t legally obligate either party to proceed with the transaction.
An LOI can be a helpful tool for both parties involved. It allows the parties to outline the deal’s key terms and ensure they’re on the same page. It can also help to avoid misunderstandings and disputes down the road.
When Is a Letter of Intent Needed?
An LOI is often needed when buying or selling a website or online business. It’s typically used when the buyer and seller have already had initial discussions about the transaction and are ready to move forward.
The LOI may be used to formalize the process of making and accepting the offer. The buyer may present the seller with an LOI when making an offer or after a verbal agreement has been made. Although LOIs are typically non-binding, the agreement formalizes both parties’ intentions to proceed with the transaction.
Typically, the LOI is signed before the buyer performs extensive due diligence on the business. For sellers, having a signed LOI before due diligence helps to prevent the potential loss of confidentiality that comes with sharing sensitive business information, including financials.
What Should an LOI Include?
While there’s no set format for an LOI, it should include certain key elements to ensure clarity and avoid potential disputes. These elements may include:
- The names and contact information of both parties involved.
- A description of the business or assets being sold (and any assets that may be excluded from the sale).
- The proposed purchase price and payment terms.
- A due diligence period, during which the buyer can review all relevant information about the business.
- An exclusivity clause preventing the seller from selling to someone else while the LOI is in effect.
- Confidentiality and non-disclosure agreements to protect sensitive information.
- A timeline for closing the deal, including any important dates or deadlines.
- Signatures of both parties to indicate their agreement with the terms outlined in the LOI.
Frequently Asked Questions
Is a Letter of Intent necessary for selling an online business?
No, a Letter of Intent is not required or necessary for selling a website or online business. However, LOIs are often used, and they provide significant benefits, including establishing a preliminary agreement between the buyer and seller, outlining key terms of the transaction, and helping to streamline the negotiation process. Additionally, sellers may require an LOI before providing sensitive information to the buyer for due diligence.
Who prepares the Letter of Intent?
Typically, the buyer will prepare the Letter of Intent and present it to the seller. However, both parties may work together to draft and negotiate the terms outlined in the LOI. If you’re buying a business through a broker, they may have an LOI template they typically use.
Is a Letter of Intent legally binding?
Typically, a Letter of Intent is non-binding, meaning it does not legally obligate either party to proceed with the transaction. However, it’s important to note that certain provisions within the LOI may be legally binding, such as confidentiality and exclusivity clauses.
Does an LOI require a deposit?
No, a deposit is not typically required for an LOI.
We also have other templates for various stages in the acquisition process: