Updated on March 13th, 2023
A business proposal letter of intent (LOI) is a formal document summarizing the proposed terms of a business deal or transaction with another party. The letter outlines the general terms and conditions of a formal agreement to start the negotiation process. Once completed, the document will describe the purpose of the transaction, which may come as an investment in a business, joint venture, real estate investment, or business acquisition.
What to Include
A business proposal letter of intent should detail the basic terms of a future transaction between two parties. Once both parties accept the terms of this agreement, a more detailed agreement may be drafted. Most business proposal LOIs will include the following information.
The name of the individual or company submitting the proposal LOI should be included in the document. The name of the recipient should also be included.
Since a business proposal letter of intent can be used for various transactions, the letter should clearly describe the nature of the proposal. Some examples of transaction types are:
- Investment in real estate
- The purchase of a business outright
- Investment in partial ownership of a company or partnership
An essential provision in any letter of intent is how much a potential investment or acquisition will cost, who will be paid, and what percentage of ownership interest the buyer will receive for their investment.
Additionally, whether the letter is conditional on the investor’s ability to obtain financing should also be relayed in the document.
Due Diligence and Investment Conditions
Most investors will want the opportunity to perform their due diligence as a condition of their commitment to the business transaction they intend to make. The LOI will often contain a provision that states the investor’s intention to do this and communicate that information with other relevant parties.
Critical deadlines should be noted on the document. Some important dates may include:
- The effective date of the LOI.
- How many days the investor has to enter a formal agreement after receiving all due diligence materials.
- The deadline to sign and return a duplicate copy of the LOI to the investor after acceptance.
- The signing dates of the investor and principal members.
When To Use
A business proposal letter of intent is a valuable tool to ensure both parties are on the same page before incurring due diligence costs and drafting a formal agreement. Some situations where a business proposal LOI include:
- Mergers and Acquisitions: A prospective buyer may use an LOI to inform a business owner of their interest in purchasing the owner’s business and how much they offer to pay.
- Joint Ventures: A business proposal letter of intent may be used to propose that two companies work together on a mutually beneficial project or purpose for a limited amount of time.
- Real Estate Transactions: A business transaction LOI may be drafted by a buyer to begin negotiations with a property owner. These are often used as bargaining tools in commercial real estate purchases.
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BUSINESS PROPOSAL LETTER OF INTENT
Date: [DATE] (the “Effective Date”)
[SENDER (e.g., INVESTOR) NAME]
[SENDER STREET ADDRESS]
[SENDER CITY, STATE, ZIP]
[RECIPIENT (e.g., BUSINESS OWNER) NAME]
[RECIPIENT STREET ADDRESS]
[RECIPIENT CITY, STATE, ZIP]
RE: Business Proposal
This Business Purchase Letter of Intent (the “Letter”) sets forth the proposed terms and conditions of the Purchase described hereunder and shall govern the relationship between the Investor and Shareholder (the “Parties”) until replaced by a definitive, formal agreement addressing the same purchase and subject matter (the “Definitive Agreement”). The Purchase considered in this Letter and in the Definitive Agreement is subject in all respects to the following:
1. THE INVESTOR. [INVESTOR NAME] (the “Investor”) with a mailing address of [ADDRESS].
2. THE INVESTMENT. [INVESTMENT NAME] (the “Investment”).
3. INVESTMENT AMOUNT. $[INVESTMENT AMOUNT] (the “Investment Amount”), payable on the closing date set out in this Letter.
4. THE PRINCIPAL SHAREHOLDERS. [PRINCIPAL SHAREHOLDER NAMES] (the “Principal Shareholders”) are the main shareholders or owners of the Investment.
5. THE TRANSACTION. The Investor agrees to pay the Principal Shareholders the amount of $[INVESTMENT AMOUNT] for [OWNERSHIP PERCENTAGE]% ownership interest in the Investment.
6. INVESTMENT CONDITIONS. It shall be the obligation of the Investor to review all materials provided and, subject to the satisfaction of the Investor, enter into a formal agreement within [NUMBER] days after receiving all necessary materials. The conditions of the investment also include:
- The review and approval of all materials in the possession and control of the Principal Shareholders;
- The Investor and its advisors having had a reasonable opportunity to perform the searches and due diligence to their satisfaction;
- The Investor being able to communicate with necessary clients, customers, vendors, tenants, or other third parties necessary; and [ADDITIONAL CONDITIONS].
7. CLOSING. The closing (the “Closing”) is the act of closing the transaction where the Principal Shareholders exchange the Investment for the Investment Amount. The Closing shall occur: [CLOSING TERMS].
8. CONFIDENTIALITY. The Investor and Shareholders shall maintain the negotiations and pertinent information confidential and limited only to the parties’ advisors, internal staff, or other necessary third (3rd) parties. Press or public releases are prohibited without prior mutual written authorization from the parties or as required by law.
9. GOOD FAITH NEGOTIATIONS. The Investor and the Principal Shareholders agree to into good faith negotiations to execute a formal agreement or close the transaction.
10. EXCLUSIVE OPPORTUNITY. The parties shall refrain from entering into negotiations or discussions concerning the Business with any other party unless another agreement (e.g., option to purchase, first right of refusal, etc.) is already in place.
11. GOVERNING LAW. This Letter shall be governed under the laws of the State of [STATE NAME].
12. SEVERABILITY. In case any provision or wording in this Letter shall be held invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired.
Investor Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [INVESTOR NAME]
Principal Shareholder Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [PRINCIPAL SHAREHOLDER NAME]