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Letter of Intent (LOI)

A letter from one company to another acknowledging a willingness and ability to do business. A letter of intent is most often issued as acknowledgement of the fact that a merger between companies or an acquisition is being considered seriously. Sometimes, a letter of intent may also be issued by a mutual fund shareholder to indicate that he/she would like to invest certain amounts of money at certain specified times. In exchange for signing a letter of intent, the shareholder would often qualify for reduced sales charges. A letter of intent is not a contract and cannot be enforced, it is just a document stating serious intent to carry out certain business activities.

Interim agreement that summarizes the main points of a proposed deal, or confirms that a certain course of action is going to be taken. Normally, it does not constitute a definitive contract but signifies a genuine interest in reaching the final agreement subject to due diligence, additional information, or fulfillment of certain conditions. The language used in writing a letter of intent is of vital importance, and determines whether it is only an expression of intent or an enforceable undertaking. Also called 'memorandum of understanding' or 'precontract'.

One device chat can be helpful to keep up the momentum is a non binding letter of intent to purchase. The same objective can be accomplished through a more formal «memorandum of intent to purchase» - but a memorandum usually turns out to be more legalistic and, therefore, more threatening to a seller.

Giving the seller a modest, earnest money deposit along with the letter of intent is also helpful, because it shows you’re sincerely interested in pursuing the purchase and arc not wasting the sellers time. But because details of the purchase have not solidified at this point, be sure to provide that the deposit is to be refunded if the purchase falls through.

A sample nonbinding letter of intent is shown below.

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