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Letters of Intent


Why Letters of Intent regarding the Sale of a Business Are Important

When making negotiations and sales, both parties want to be on the same page of the important. The buying party wants to make sure they are getting everything they expected in the sale, while the selling party wants to make sure they are selling only what they intend. In the area of selling a business, the concerns go beyond selling the physical building and franchise. What will happen to the machines or items inside the physical building? Will the trademark of the franchise transfer as well? These seemingly obvious questions may not always be addressed, or one party may just assume an answer will be included in their agreement. The way to make sure all these big or nuanced issues are addressed is to make sure your letter of intent includes everything important to you and your side of the sale of the business.  Gateville Law Firm is a boutique business and small business law firm servicing Illinois businesses and their owners.  We regularly help small business, Limited Liability Corporations, and S Corporations on their purchase and sale of business legal decisions. 

Short or Long?

Letters of Intent can be long form, which would include almost (if not all) of the key issues that are involved in the sale. These long-form letters touch on each aspect of the sale that both parties bring up as important to the sale going well. Important issues that the sale may depend on in order to continue are addressed outright, while allowing for other smaller issues – that may or may not turn into bigger issues – are addressed and thought about prior to any financial moves being made. A downside to long form is that with deciding on and writing out all the potential issues within the transaction, the process may slow down and it will take a longer time to get financing and complete the transaction.

The other way a letter of intent can be drafted is called short form. As the name suggests, it’s much shorter than its counterpart, and really only addresses the few most important terms (such as the price). Though it calls for a faster transaction process, it allows for some minor issues that were not addressed to potential cause problems after the fact. In the end, the type of letter of intent will depend on what kind of a person you are (are you someone who wants every potential issue ironed out toward the beginning and settled or are you more of a person who takes issues as they come up) and how quickly you want the process of the transaction to occur.

What Could a “Bad” Letter of Intent Do

No matter the length, the importance of a Letter of Intent truly lies in the details and what both parties have included in the content of the letter. The downfall of the transaction may occur with the letter of intent not being followed, but if something isn’t addressed in the letter of intent, it may cause more issues (and more money). Clarity of the letter of intent is imperative, as both parties should know what they are agreeing to and what is necessary on their part in order to make the transaction go smoothly. Some terms may also be binding or non-binding, so clarity on which terms are which will keep the buyer and seller on their necessary paths to complete the transaction properly. Unclear terms can slow the process, add costs for court intervention or arbitration to determine the meaning of the unclear terms. Setting expectations in the letter of intent also helps move the process along and creates a sense of responsibility for each side, and can also allow a side who is following up in their expectations to notice when the other side is not and can potentially lead to reevaluating this other party as someone to do business with. Dispute Resolution is also a key addition to a letter of intent in order to curb problems when they, inevitably, do occur. Without language relating to dispute resolution, the transaction will be further delayed when trying to figure out how to handle the problem(s) and the buyer/seller relationship may be damaged by the tension of the dispute if the resolution does not fall into the respective party’s favor.

 Taking the time to think of and write out a good letter of intent will not only make the business transaction smoother, it will also give each party their optimal terms and wishes for the transaction, while hopefully decreasing a chance of delay or termination of the transaction, while keeping the buyer/seller relationship on amicable, equal grounds. 

Gateville Law Firm has the experience in representing business owners such as small business owners, corporations, and LLCs in the purchase and sale of a business. This experience and drafting well-drafted and comprehensive letters of intents and Asset Purchase Agreements are crucial to business owners and their families. We can be reached at 630-780-1034.

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