Letters of intent smoke out problems before the parties commit to a transaction. Despite having no binding effect in the law, a letter of intent is one of the most important agreements a seller of business shares will sign. It establishes the price and core terms of the deal and morally obligates the buyer to proceed with the transaction in good faith. With careful drafting, the letter of intent, or LOI, assures the seller that the buyer will treat disclosed business information confidentially and move toward legal completion of the sale.

Badly drawn LOIs -- ones that are vague and open to interpretation -- are little better than a handshake.

The LOI should state the material terms of the transaction clearly enough that the agreement can't be misconstrued. Nonspecific drafting causes delays and may even put the deal at risk if the parties cannot resolve the misunderstanding.

Conversely, overworked LOIs draw out an otherwise simple process. Keep it specific but simple. Identify your letter as a letter of intent to sell shares.

Define the company and who is meant by "seller" and "buyer. Include the postal and registered address of the company, if they're different. Name every shareholder involved in the sale.

How to Write a Letter of Intent to Sell Shares of a Company | zuwywakybobu.web.fc2.com

Describe the specific shares that are the subject of the transaction and make it clear that the transaction is a share sale and not an asset sale. If the goal of the deal is to put cash in the hands of the seller in return for delivering control of the company to the buyer, then price -- how much and how and when it is paid -- is the single most crucial clause of the LOI.

If any payments are deferred, specify when they fall due and what event or date triggers the payment.

If you have not reached a sale price, describe how the price is to be reached -- for example by professional valuation upon disclosure of the company accounts.

Include all of the economic and legal terms of the deal.

Consider such matters as financing and the proposed timeline. Provide the target closing date for the sale. State that you may renegotiate, or walk away, if the buyer does not complete a legal agreement by the target date.

Specify any preconditions that must be satisfied before the deal can close, including who is responsible for satisfying the condition and when it must be satisfied. LOIs typically have two contractually binding sections: Make it clear that these sections are intended to be enforceable, but the remainder of the letter is merely an expression of intent. Jayne Thompson qualified as a solicitor in She holds a first degree in law and business from the University of Birmingham and a Master of laws from the University of East London.

Letter of Intent re: Purchase of Shares - zuwywakybobu.web.fc2.com Inc., Airwaves Sound Design Ltd. and Airwave Digital Group Ltd. - Sample Contracts and Business Forms

Thompson shamefully admits to using her family as fodder for the lifestyle and parenting articles she also writes, which have appeared most recently in "The Green Parent" magazine. Skip to main content. Worth the Paper It's Written on Badly drawn LOIs -- ones that are vague and open to interpretation -- are little better than a handshake. Get the Easy Stuff out of the Way Identify your letter as a letter of intent to sell shares.

The Price Is Right If the goal of the deal is to put cash in the hands of the seller in return for delivering control of the company to the buyer, then price -- how much and how and when it is paid -- is the single most crucial clause of the LOI. Leave Nothing Out Include all of the economic and legal terms of the deal.

Keep It Confidential LOIs typically have two contractually binding sections: References 2 Clyde Snow: Making Sense of Letters of Intent and Deal Structure in Selling Businesses Regelle Partners: What a Seller Should Know Before Signing a Letter of Intent.

Letter of Intent re: Purchase of Shares - zuwywakybobu.web.fc2.com Inc., Airwaves Sound Design Ltd. and Airwave Digital Group Ltd. - Sample Contracts and Business Forms

Sample Letter of Intent. About the Author Jayne Thompson qualified as a solicitor in Suggest an Article Correction.

Also Viewed How to Do a Letter of Intent for Corporate Finance How Do I Separate From a Partner in a Business? What Happens When a Shareholder Leaves a Company? Definition of a Standby Letter of Credit.

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