Letter of Intent

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When potential sellers and buyers are contemplating entering into a business sale and purchase transaction, initial considerations may involve key terms such as the purchase price, payment terms and deal structure as an asset or share purchase, etc.

When discussions and negotiations become serious, such key terms may be documented in an agreement called ‘Letter of Intent’ (sometimes referred to as a ‘Memorandum of Understanding’). The Letter of Intent establishes fundamental terms of the transaction.

The purpose of the Letter of Intent is to:
Establish key terms prior to drafting the complex or extensive definitive Sale and Purchase Agreement
Document the commencement of negotiations between parties
Prevent Seller from entertaining other offers
Provide safeguards in case deal collapses during negotiations
Generally attempt to bind party to certain terms prior to completion of transaction (eg non-disclosure or non-solicitation agreement)
Although terms of the Letter of Intent may be binding or non-binding, the Ontario courts view the Letter of Intent as serious intention of the parties to contract. The parties should exercise good faith with a view to honouring the contract.

The law firm Landmark Law Professional Corporation may assist with your ongoing business legal needs.

Disclaimer: This article does not contain legal advice and only provides general information. It is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this article before making decisions. Use of this article does not establish a lawyer-client relationship.

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Winnie J Luk, BA, JD, MBA, founder of Landmark Law, is a seasoned Ontario lawyer practicing in Wills and Estates, Real Estate, and Business Law and frequent speaker of free legal education seminar.