Legal Definitions - LOI

A Letter of Intent (LOI) is a preliminary document that outlines the key terms and conditions of a proposed agreement between two or more parties. It serves as a non-binding declaration of intent to enter into a formal contract in the future, signaling serious interest and providing a framework for subsequent negotiations. While typically not legally enforceable in its entirety, an LOI often includes certain binding provisions, such as confidentiality agreements or exclusivity clauses, to protect the parties during the negotiation period. Its primary purpose is to establish a mutual understanding of the deal's fundamental aspects before investing significant time and resources into drafting a comprehensive, legally binding contract.

• Example 1: Business Acquisition

  A large technology company, "Innovate Corp," is interested in acquiring a promising startup, "FutureTech Solutions." Innovate Corp sends a Letter of Intent to FutureTech Solutions, detailing the proposed purchase price, the key assets to be acquired, the timeline for conducting due diligence, and a period of exclusivity during which FutureTech Solutions agrees not to negotiate with other potential buyers. This LOI signals Innovate Corp's serious intent to proceed with the acquisition and establishes the core financial and procedural terms, allowing both parties to move forward with detailed investigations and negotiations before drafting a complex merger agreement.

• Example 2: Commercial Real Estate Lease

  A popular restaurant chain, "Gourmet Bites," identifies a prime retail space in a new downtown development that it wishes to lease. Gourmet Bites submits a Letter of Intent to the property developer, outlining its desired square footage, the proposed annual rent per square foot, the preferred lease term (e.g., 10 years with options for renewal), and a request for specific tenant improvement allowances. This LOI communicates Gourmet Bites' strong interest in the location and provides a clear summary of the fundamental lease terms it is willing to accept, enabling the developer to assess the proposal and begin drafting a formal lease agreement.

• Example 3: Joint Venture Partnership

  Two pharmaceutical companies, "MediCorp" and "BioGen Innovations," are exploring a partnership to develop a new cancer drug. They sign a Letter of Intent that outlines their shared objectives, the proposed division of responsibilities (e.g., MediCorp handles manufacturing, BioGen Innovations leads research and development), initial capital contributions from each party, and a framework for sharing profits and intellectual property. The LOI also includes a binding confidentiality clause to protect sensitive information exchanged during preliminary discussions. This LOI establishes a foundational understanding and commitment to explore the joint venture further, defining the core structure and protecting proprietary data, even before a formal, legally binding joint venture agreement is drafted.