Few things are more challenging and stressful than buying or selling a business. After all, there is likely a substantial amount of money on the line. You do not have to leave the success of the deal to chance, however. A well-drafted letter of intent outlines the major obligations and responsibilities of both parties.
Whether you are buying or selling a business, you have great flexibility to include a variety of terms in the letter of intent. You must, however, name both the parties to the sale and identify the business venture. You probably also want to address a few other topics. Here are three common ones:
You and the other party may have agreed on a purchase price. If so, your letter of intent should define it. You can also include details about financing if necessary. Likewise, if the sale depends on contingencies, outline them in your letter of intent.
Time is a very critical item in the purchase or sale of a business venture. You should think about more than the just the wclosing date, though. You may want to memorialize timing benchmarks in your letter of intent. When doing so, you may also want to describe the consequences of a missed deadline.
Finally, your letter of intent should address how each party is going to perform due diligence. This may include a review of finances, equipment, inventory, intellectual property and other material diligence items. If a nondisclosure or confidentiality agreement is necessary to facilitate due diligence, you may want to incorporate it into the letter of intent as well.
If you are buying or selling a business, drafting a letter of intent is usually a sensible first step. When you do so, the language you use in the letter of intent matters. With care, you can create a letter of intent that makes the material terms crystal clear for everyone involved and creates the roadmap to be followed when the formal purchase and sale agreement is drafted.