What is an LOI and Why your Attorney Should Review it Before Signing
Interested in buying a business? Does the Seller want you to sign a Letter of Intent (LOI)? Often we hear the same story: ‘The Seller says the LOI is merely a formality that will allow me to review books and records of the company and get the process started.’ Sounds simple enough, but should you have an attorney review the LOI before you sign? Absolutely. And here’s why:
The LOI can be the most important document during an acquisition. It will outline the parameters of the deal, sometimes in substantive (although ostensibly “non-binding” in parts) detail. It is a rather simple and short document but it manages to encompass all of the material terms of the deal that will later be expounded in a lengthier Purchase Agreement. The LOI sets up the expectations for the deal. Seller has probably already met with his/her attorney (in fact, his/her/their attorney drafted the LOI!) and determined the most advantageous structure for the transaction. The LOI will dictate the material terms of the sale, which will have significant consequences to both buyer and seller.
To be continued … look for Part II: Questions to Consider before the LOI is Signed. Coming soon!