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Whats the legal purpose of a letter of intent? If the letter isn't binding then surely it has no real legal power.

maneesh 6y ago
It's similar to an engagement proposal for marriage. You aren't legally requiredto get married if you get engaged --- but having an engagement first gets all parties more committed, makes it clear that there will be a next step. He mentions in the article, it serves to provide some sort of verifiable agreement on the important numbers, and security that the buyer is serious
IncRnd 6y ago
An LoI lays out the understandings of the parties, so they can know whether to proceed and under what terms they should do so. An LoI also creates a backstop of intents in case of legal proceedings. Thirdly, an LoI let's parties define expected remedies in case the deal fails. There may additionally be specific implementation details spelled-out. I'm sure there may be more reasons, but those are the ones I'm familiar.
inopinatus 6y ago
LOIs are dangerous documents because, unless drafted by a capable lawyer, they likely create a contract. If someone asks for a LOI with regards to, say, an equipment purchase, and suggests that it is a “non-binding document”, I halt the deal because they’re probably either unscrupulous or incompetent. In such circumstances a LOI is essentially a badly written purchase order, and the other party may rely on it, and bill you accordingly, and repudiation is actionable. The document I hope they describe should be more like a Heads Of Agreement, setting out, at most, terms of reference for a deal.
deleted 6y ago
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detaro 6y ago
Details depend on the legal system, but an LoI can have binding clauses (e.g. an exclusivity clause) and it not being binding for the final contract to actually happen doesn't mean it isn't requiring you to be truthful. E.g. if you state that you intend on selling to X (but some things still need to be hashed out which could break the deal), and X on that basis pays an auditor or lawyers to finalize details, and then it comes out that you actually were already in the process of selling to Y and didn't really intend to sell to X, then you might owe X compensation for the costs they incurred based on your misrepresentation - and X has a signed piece of paper to point to as evidence. (And in reverse if X strings you along with misrepresentations) And the term LoI is somewhat vague - LoIs can also be actual contracts if they aren't carefully worded.

It's similar to an engagement proposal for marriage. You aren't legally requiredto get married if you get engaged --- but having an engagement first gets all parties more committed, makes it clear that there will be a next step. He mentions in the article, it serves to provide some sort of verifiable agreement on the important numbers, and security that the buyer is serious

IncRnd 6y ago

An LoI lays out the understandings of the parties, so they can know whether to proceed and under what terms they should do so. An LoI also creates a backstop of intents in case of legal proceedings. Thirdly, an LoI let's parties define expected remedies in case the deal fails. There may additionally be specific implementation details spelled-out. I'm sure there may be more reasons, but those are the ones I'm familiar.

inopinatus 6y ago

LOIs are dangerous documents because, unless drafted by a capable lawyer, they likely create a contract. If someone asks for a LOI with regards to, say, an equipment purchase, and suggests that it is a “non-binding document”, I halt the deal because they’re probably either unscrupulous or incompetent. In such circumstances a LOI is essentially a badly written purchase order, and the other party may rely on it, and bill you accordingly, and repudiation is actionable. The document I hope they describe should be more like a Heads Of Agreement, setting out, at most, terms of reference for a deal.

deleted 6y ago

[deleted]

detaro 6y ago

Details depend on the legal system, but an LoI can have binding clauses (e.g. an exclusivity clause) and it not being binding for the final contract to actually happen doesn't mean it isn't requiring you to be truthful. E.g. if you state that you intend on selling to X (but some things still need to be hashed out which could break the deal), and X on that basis pays an auditor or lawyers to finalize details, and then it comes out that you actually were already in the process of selling to Y and didn't really intend to sell to X, then you might owe X compensation for the costs they incurred based on your misrepresentation - and X has a signed piece of paper to point to as evidence. (And in reverse if X strings you along with misrepresentations) And the term LoI is somewhat vague - LoIs can also be actual contracts if they aren't carefully worded.