In business, a Letter of Intent sets the stage for a contract to execute, and finalize, a transaction. While it is not a binding contract in itself, there are provisions within the letter that may establish a formal agreement between the two parties involved, such as; an agreement to non-disclosure or a provision to establish exclusivity in negotiations. The purpose of the letter is to;
1) outline the key points of the sales transaction,
2) to officially establish that both buyer and seller are in negotiations, and
3) to implement safety measures in the event the deal falls through in negotiations.
In short, the letter is used to establish the terms of a sale. Additionally, a Letter of Intent is generally required by financial institutions when a large financial transaction is under consideration. They do this to ensure that both parties are seriously considering the transaction, to avoid expending effort and time on a transaction that wasn’t serious.
The following is a sample Letter of Intent template:
Letter of Intent Example