Sample Letter of Intent to Purchase Business
For those who want to purchase business and the negotiations are getting serious, you can use a thing called letter of intent to take proceedings to the next stage. The term “letter of intent” that is also known as purchase offer or term sheet such as the written proposal to buy a business can be described as the non-legally binding document.
This one is usually issued by the buyer to the seller, that outlines the agreement in the principle for the buyer to purchase the business of the seller at the proposed offer price. This kind of thing is formally sets out in writing the intentions of both parties in he negotiations. Aside from making clear the responsibilities of parties, this one also protects the rights.
There are some items that should be included in the letter of intent to purchase a business. The first one is the document has to be clearly identified as the letter of intent. This kind of document should make it clear that this one is no binding contract to purchase or sell the business. Every party may want to include, and several states will impose automatically, the duty to negotiate in the good faith.
The second one is the letter of intent should state from the outset whether the deal will involve the sale of stock or the sale of assets. It is good if both sides spent significant amounts of money but a certain party thought from the outset that they were talking about the stock sale and the other party thought they were taking about the asset sale.
The third one is the letter of intent should include both the purchase price and the explanation of the assumptions that he purchase price is based upon. When the diligence process due, this may turn out that a lot of the early assumptions used in calculating the purchase price will turn out not to be true. If the method of calculating the purchase price is counted in the letter, every party has the road map on how the purchase price has to be adjusted.
The fourth one is if the deal is purchase of assets, the parties have to allocate the purchase price to the different assets on the acquisition target’s balance sheet. A thing called allocation is able to have the great effect on the tax implications of the deal for the parties. As the tax considerations are often critical to whether the deal is feasible, there has to be the common understanding of the purchase price allocations at the very early stage of the deal process.
The fifth one is he method of the payment should be set out. As stated in the second point, f a certain party has in mind the all cash deal, and the other party has in mind the deal where the seller will hold into the note or some other retained interest in the acquisition target, it is such a good thing for the parties to get on the same page from the outset.