Will County Letter of Intent to Purchase

 Posted on March 16, 2023 in Business Law

A Letter of Intent, an LOI, is an informal document that outlines a buyer's interest in purchasing something from the Seller, whether it be an item, real estate, or a business. A Letter of Intent does not have to be legally binding, meaning the parties can either walk away or change the terms within the LOI. While a Purchase Agreement is the more formal and binding document, a Letter of Intent will lay out the necessities of the purchase to indicate whether the parties can agree later on. Let our Will County Business Attorneys assist you with business and franchise transactions in the Joliet, Plainfield, Shorewood, Yorkville, and Oswego areas. Gateville Law Firm services the Will, Kendall, Grundy, LaSalle, DeKalb, and Kane Counties areas.

Types of Letters of Intent

There are two instances when a Letter of Intent should be utilized. The first is a Letter of Intent to purchase real estate or a business. The critical aspect of this purchase agreement is that it should be definitively stated that it is not legally binding. This is because the Letter of Intent will only lay out essential terms, and when moving forward to create the Purchase Agreement, the deal may fall through due to disagreements. For this reason, a Letter of Intent for the purchase of property or a business must clearly say that it is non-binding until the execution of a Purchase Agreement, which must be agreed to by all parties and is then binding on all parties.

The second instance in which a Letter of Intent should be used is to acquire a business. This is because an acquisition of a company will include many details, such as possible purchase price, disclosures that need to be made, and even a possible non-compete that could be stated within. Another aspect that is typically included in a Letter of Intent for the acquisition of a business is a confidentiality statement. During this phase, and before the Purchase Agreement, the Seller will disclose critical information about their business, such as earning potential and other sensitive information. Because a Letter of Intent is not typically binding, the Buyer could review all the disclosures and decide not to proceed. The confidentiality statement will prevent the Buyer from disclosing the sensitive information to other individuals and businesses.

Key Terms to Include in a Letter of Intent

A variety of terms could be included in a Letter of Intent, but some are more imperative than others. The most important term is information about the Buyer and Seller. For example, it should indicate if the parties are individuals, a Corporation, LLC, or some other entity, and the State they are incorporated. A proposed timeline could also be incorporated into the Letter of Intent. This timeline should be viewed as a proposal and should be taken sparingly. A preliminary purchase price should also be included in the LOI but can be amended after business disclosures are made to the Buyer from the Seller. Various other terms can be included in an LOI based on the purchase's facts, such as specific disclosures, a non-compete, a non-binding provision, and other possible terms as necessary.

Benefits of a Letter of Intent

The main benefit of a Letter of Intent is that both parties can work through the essential terms of the purchase before negotiating specific terms and creating a Purchase Agreement. In addition, a Letter of Intent allows for an assessment of the potential risks and rewards of purchasing the business or property. Once the appropriate disclosures are made, if the Buyer determines that the risks outweigh the possible rewards, he is free to back out of the purchase and, at most, be subject to a confidentiality agreement. 

Because a Letter of Intent still requires discussion and broad agreements, it indicates that both parties are serious about the proposed transaction. Both parties are subject to certain restrictions and must perform specific tasks that typically only a party serious about the transaction will agree to succumb to. Requiring a Letter of Intent will indicate to the Seller who is serious about the purchase and who is not.

Shorewood Business Law Attorneys are Here to Help

When drafting a Letter of Intent and determining if a specific term is acceptable, some Buyers and Sellers will need to understand the legal repercussions of an agreement. Therefore, it is crucial to have an attorney on hand that is well-versed in business law and can assist in creating a Letter of Intent that accurately reflects your interests and concerns. At Gateville Law Firm, LLC, the attorneys and staff are ready to help your business needs and can give critical insights based on your specific factual circumstances. We service the counties of Will, Grundy, LaSalle, DeKalb, Kane, & Kendall County (and surrounding areas). To inquire more about our business services, call our office at 630-864-5788.