When two parties start negotiating on buying or selling a business, it can take weeks and months to finalize the things and agree on mutual terms. During this time, each party has his fears that what would happen if the other party backs out of the negotiation and all the work done goes to the ground. In order to make sure that once negotiation is started, no party back out, all the parties involved in the deal sign a mutual document called the letter of intent to purchase a business. This letter is sent by the buyer to the seller and once the seller accepts the offer and agrees to negotiate, he signs the letter with approval.
Brief Description of Letter of Intent to Purchase a Business:
When we talk about the letter of intent to purchase a business, there is no legal value of this letter except if the letter includes a penalty for the party that may back out of the deal. For example, when the buyer sends this letter to the seller, he includes that if the seller leaves the deal in the middle of the negotiation, he will pay a certain amount to the buyer. This way the buyer saves the trouble of going through so much time and ending up with nothing. There are certain elements that are required to be included in the letter of intent to purchase a business. This includes the most important elements which is the price on which the buyer wants to buy the business. Next important thing is the duration of the negotiation which describes the time frame in which both the parties have to finalize the things between them.
Another important thing is to discuss the liabilities included with the business along with the assets that the seller will sell to the buyer. The last element is the written consent of the partners of the business. Once all the above mentioned elements are included in the letter, it is signed by the parties so that they can continue negotiation on the buying or selling terms for the business. Sometimes the buyers also include an additional term in the letter which is the penalty that the leaving party will pay to the other party.
Sample Letter of Intent to Purchase a Business
William Dane, CEO
Zebra international Investment organization
Los Angles, LA 837103
Toby K. Debar
Owner/CEO of Golf International
New York, NY 489410
Subject: letter of intent to purchase the business
Dear Mr. Debar,
I am writing this letter in order to present my intentions to buy your business. As you can understand that I have presented my offer to you and you have accepted it for the negotiation but it is very obvious that even if we make it quick, this process can take a while. That’s why I am writing this letter to show my intentions and asking you to accept it so that we can continue our negotiation for the purchase of your company. Please respond to this letter with your intentions within 10 days after receiving it.