Letter of Intent

Letter of Intent If a Letter of Intent has to be drawn up, an important phase in the takeover process has been reached. The negotiations will last you have been completed and the deal will have been made between the parties. When drawing up the Letter of Intent the focus is on making and reporting conditions, guarantees and other agreements of the deal.

What is the point of drawing up a Letter of Intent?

In a Letter of Intent the parties indicate in writing that they have the intention of carrying out a company takeover, while taking account of a number of agreements and conditions. One of those conditions may, for example, relate to the outcomes of an audit (due diligence). An audit is a careful investigation of the object of the company takeover, namely the business. This takes time before the company takeover is actually executed and also requires insight being given into all aspects of the business. Before insight is given into this, often confidential, information, it is of course important to maximise the chance of success of the transaction. A Letter of Intent is intended to lay this down for the parties.

Content of the Letter of Intent

A Letter of Intent often contain two sets of arrangements:

  • The (binding or otherwise) willingness or agreement relating to the main issues of the transaction: the object of the transaction, purchase price specification, delivery, payment of purchase price, the ‘usual’ guarantees, notification to and consultation with trade unions, etc.
  • The procedure agreements or separate, individual ‘schedule’ agreements. These are often binding in nature, for example a non-disclosure clause. These are often intended to be regulations which make it unequivocally clear to the parties which stage of preparations or negotiations a certain element of the intended takeover is in.

In practice Letters of Intent come in all shapes and sizes, varying from a number of written basic agreements to full-blown legal contracts. It is important in the case of any Letter of Intent that the arrangements agreed between the parties are recorded so as to guarantee transparency and continuation of the rest of the process.

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