How Is A LOI Different Than A Purchase Agreement?

How is a LOI different than a purchase agreement? What should be included in both?

While a purchase agreement is a binding contract with rights and obligations for each party that contains all the terms and conditions of the transaction; a preceding Letter Of Intent (LOI) is often overlooked for its significance. Although non-binding a comprehensive LOI with the same deal points will benefit both the seller and the buyer.  When all major sales terms, key ancillary agreements and important conditions are negotiated and agreed on by both parties they are in a position of much higher degree of success and their true intention of moving forward on the deal. Some of the basic items of a typical LOI should contain purchase price and terms; assets covered and delivery date; due diligence period; closing date; investigation of the business; consulting arrangements with owner or key employees; confidential information; releasing of public information, expenses and conditions  to closing.

When a seller accepts an LOI with the desired deal points he has exercised his strength in an active market with multiple buyers and further reduce opportunity loss of other qualified buyers by removing the business off the market during the due diligence period. The buyer would reduce potential disagreements on open items and the need for renegotiation. And they both would reduce the chance of wasting precious time and incurred expenses. Having an experienced agent will guide you through the entire process, make recommendations and handle the negotiation on your behalf.

About The Author:  KC Choi founder of Power Business Solution, Inc. offers business brokerage services to both buyers and sellers in the Los Angeles and Orange County areas. His business team includes 15+ professionals (multi-lingual) with extensive experience and knowledge with business transactions.  KC can be reached by phone at 714-345-6774.

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Categories: BizBen Blog Contributor, Deal And Escrow Issues