top of page
Writer's pictureleadindia400
Aug 103 min read

WHAT IS THE LETTER OF INTENT TO PURCHASE BUSINESS ?

Letter Of Intent To Purchase Is An Important Instrument For Your Business Acquisition.  In Order To Pursue Discussions With The Seller, It Is A Customary Practice To Sign A Confidentiality Agreement And Write A Letter Of Intent.

While Ensuring Your Interest In The Business Acquisition, These Documents Would Come As Handy  For The Upcoming Negotiations Acting As The Basic Intent Of The Party As Well As Protecting The Sensitive Information Of The Target And The Seller.


In Order To Draft A Document Providing Optimal Protection For Each Party, Following Points Mentioned Should Be Kept In Mind. In Order To Have A Letter Of Intent To Purchase Business  Drafted According To Your Interests As Well As Without Any Loopholes, It Is Important That You Appoint An Experienced Corporate Lawyer. 


Confidentiality Agreement


A Letter Of Intent Of Purchase Or Any Other Business Dealing Is Very Often Preceded By A Confidentiality Agreement Aiming To Protect The Information As Well As The Documents Belonging To Both Parties. It Includes Financial Data, Customer And Supplier Lists, And Intellectual Property Information Which Shall Be Communicated In The Due Diligence Process.

A Confidentiality Agreement Is Important For A Potential Buyer To Have Access To The Information He Or She Needs To Formulate A Letter Of Intent, To Make An Offer Or To Withdraw  Some Interest, If Any. The Potential Buyer Will Agree Therefore, That Such  Information Could Be Used For The Purposes Of Evaluating The Proposed Transaction Only.


The Letter Of Intent


A Letter Of Intent  Would Generally Act As A Catalyst To Advance The Process For Acquisition Or A Joint


The Document Would Reassure The Seller Of The Buyer’s Willingness To Submit A Potential Bid, Would Help Lay Down  Key Elements Of The Transaction And, If Required, Would Also Assure A Period Of Exclusivity During The Negotiations.


The Document Is Of Legal Nature; But It The Letter Of Legal Intent Is Not Intended To Be Fully Binding, Unless Otherwise Stipulated In An Expressed Manner.


At This Stage Of The Negotiations, The Buyer And The Seller, Do Not Have To Make An Official Offer To Proceed With A Transaction. However, Still  The Letter Of Intent Shall Create Binding Obligations On One Party Or The Other, Particularly In Regard To Confidentiality And Exclusivity Regarding The Said Business Transaction


Clauses Which Shall Be Included In A Letter Of Intent


A Letter Of Intent May Include General Clauses And Some Specific Ones, Including:


  • Nature Of The Proposed Transaction Between The Parties 

  • Identification Of The People Involved With The Transaction

  • Price Range Decided For The Acquisition, Subject To Amendment And The Terms Of The Payment Decided Later On After The Due Diligence Process Is Completed

  • The Period During Which The Seller Agrees Not To Solicit Or Consider Offers From Others For Purchase Without Previously Speaking With The Buyer As Well As The Penalties Associated With Breaching The Commitment Shall Be Mentioned In The Letter Of Intent.

  • Condition That The Buyer May Withdraw From The Business Process At Any Time In Case The Transaction Will Not Provide The Expected Gains Will Be Included In The Letter Of Intent As Well

  • Usual Closing Conditions Of A Business Transaction


A Document Which Has Legal Weight


Though A Letter Of Intent Is Not Intended To Create Contractual Obligation On The Parties To Close A Deal, It Does Not Mean That It Is Not Having A Legal Weight.


It Is, Thus Advised To Contact An Advocate Specialising In Corporate Law From The Initial Stage Itself, Who Can Provide A Good Legal Framework So That Documents Correspond Perfectly To Your Intentions.

After The Main Points Of Concern Have Been Listed In The Letter Of Intent, It Would Be Time To Proceed With The Required Process. After Which One Shall Be Able To Write The Final Agreements Leading To Closing The Acquisition.


Lead India Offers You A Team Of Experienced Corporate Lawyers Who Have Been Assisting Businesses With Various Procedures And Processes Related To The Business Law. Thus, If You Wish To Talk To A Lawyer Or Seek Free Legal Advice Online, You May Contact Us.


Visit Us: — www.leadindia.law

Call Us: +91–8800788535

1 view

Comments

bottom of page