Letter of intent

Letter of intent

A letter of intent or LOI is a document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to the so-called heads of agreement. Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements and overall all Agreements which aim at closing a financially rather large deal.

LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements, a covenant to negotiate in good faith, or a "stand-still" or "no-shop" provision promising exclusive rights to negotiate. A LOI may also be interpreted as binding the parties if it too closely resembles a formal contract.

The purposes of an LOI may be:

* to clarify the key points of a complex transaction for the convenience of the parties
* to declare officially that the parties are currently negotiating, as in a merger or joint venture proposal
* to provide safeguards in case a deal collapses during negotiation

A LOI may also be referred to as a "memorandum of understanding" (MOU), "term sheet" or "discussion sheet". Although the terms refer to different documents, the differences are often formal in nature, reflecting different drafting styles or business customs, not a substantive difference in what these various documents accomplish.

Specific examples

*Education. In the United States, Letters of Intent are frequently reached between high school senior athletes and colleges and universities, which then reserve athletic scholarships for the athletes upon graduation.

*Academia. In academic settings Letters of Intent are part of the application process. There they are also known as Statement of purpose or Application Essay.

*Disabled persons. The LOI for a child is a document written by the parents or guardians that describes the child's or adult child's history, current status, and location of all other documents. In the event of the death of the disabled child's parents or guardians, courts rely upon the family's LOI for guidance in understanding the family's wishes.

*Schools. Often school administrators, particularly at high schools, need a Letter of Intent to approve the formation of a club.

*In order to keep recruiting of potential blue chip college athletic prospects on a level playing field and honest, various sports have signing days when players become eligible to sign LOI's with various schools.


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