An investment letter of intent (LOI) is used to express interest in purchasing partial ownership in a company or real estate. The letter presents the basic terms of the investor’s proposal and acts as a mark of their commitment to proceed through negotiations to reach a formal agreement. Once an agreement and formal purchase contract is made, the investor will obtain partial ownership of the company or real estate under its terms.
Investment LOIs are usually drafted by the individual who is making an investment proposal and will include the below terms and information.
- Investor and company information – The letter will need to identify the investor and the business that they wish to invest in.
- Shareholder information – The company’s principal shareholders will also be identified.
- Investment information – The letter will need to state the amount that the investor is prepared to invest, as well as the timeline and method of payment.
- Shares – The document will include the number of shares that the investor is expecting in exchange for their investment and will state that the shares are free from encumbrances.
- Financing – If the investment is contingent on the investor obtaining financing, this must be laid out in the letter.
- Information Access – The letter will usually include a clause that the investor and their agents will have access to company information and that such information will be kept confidential.
- Closing terms – Investment LOIs will typically relay the proposal’s closing date and who will be responsible for bearing any associated expenses.
- Signatures – Although many provisions of the LOI are not binding, it is generally signed by both parties.
An investment LOI is sent to begin negotiations for one party to invest in another’s company prior to the drafting and signing of a formal purchase agreement. The letter is usually delivered to the company owner after an initial meeting where the potential investment was discussed.
Due to the fact that most LOIs are non-binding, there is often no guarantee for either party that an agreement will be made. However, by drafting and signing an LOI, the investor shows their commitment to reaching a deal and improves their likelihood of succeeding.
- Clarity – Using an LOI allows an investor to gauge the company owner’s level of interest in the proposed deal, gives the owners a clear understanding of the investor’s terms and conditions, and helps avoid misunderstandings.
- More security – The letter acts as evidence of the investor’s original intentions in the event of a dispute.
- Less negotiation – By relaying the primary details of their proposed investment, the investor will generally speed up the negotiation process.
- Fewer legal fees –An LOI can help reduce legal fees by minimizing the time spent working out the details of the deal.
INVESTMENT LETTER OF INTENT
[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]
Dear [BUSINESS OWNER NAME],
This Letter of Intent (the “Letter”) sets forth the proposed terms and conditions of the transaction described hereunder and shall govern the relationship between the Investor and Principal Members (the “Parties”) until replaced by a definitive, formal agreement addressing the same transaction and subject matter (the “Definitive Agreement”). The transaction 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 [INVESTOR MAILING ADDRESS].
2. THE INVESTMENT. [INVESTMENT NAME] (the “Investment”).
3. INVESTMENT AMOUNT. $[AMOUNT] (the “Investment Amount”), payable on the Closing set out in this Letter.
4. THE PRINCIPAL MEMBERS. [PRINCIPAL MEMBERS NAMES] (the “Principal Members”) are the main shareholders or owners of the Investment.
5. THE TRANSACTION. The Investor agrees to pay the Principal Members the amount of $[INVESTMENT AMOUNT] for [OWNERSHIP PERCENTAGE]% ownership interest in the Investment.
6. ACCESS TO INFORMATION. After the execution of this Letter, the Investor and its advisors shall be granted full access to any and all information about the Investment.
7. RETURN OF MATERIALS. Any information that is obtained by the Investor through the Principal Members shall be returned if a formal agreement cannot be reached.
8. 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 Members;
- 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 as necessary; and
- [ADDITIONAL CONDITIONS].
9. CLOSING. The Closing (the “Closing”) is the act of closing the transaction where the Principal Members exchange the Investment for the Investment Amount. The Closing shall occur: [CLOSING TERMS].
10. CONFIDENTIALITY. All negotiations and information regarding the Investment between the Investor and Principal Members shall be confidential and not be disclosed to anyone other than the parties, their staff, advisors, and necessary third parties. No public release will be issued concerning the proposed Investment without mutual consent or as required by law, and then only upon prior written notice to the other party unless otherwise prohibited.
11. GOOD FAITH NEGOTIATIONS. The Investor and the Principal Members agree to enter into good faith negotiations to execute a formal agreement or close the transaction.
12. EXCLUSIVE OPPORTUNITY. After the execution of this Letter, the parties agree to not negotiate or enter discussions with any other party unless there are existing agreements in place.
13. STANDSTILL AGREEMENT. After the execution of this Letter, and until Closing, the Principal Shareholders, agree not to sell any portion of the Investment.
14. GOVERNING LAW. This Letter shall be governed under the laws of the State of [STATE NAME].
15. 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 in any way be affected or impaired thereby.
16. ACCEPTANCE. If the aforementioned terms are agreeable, please sign and return a duplicate copy of this Letter by no later than [DATE].
Investor Signature: _____________________
Date: [MM/DD/YYYY] Print Name: [INVESTOR PRINTED NAME]
Principal Member Signature: _____________________
Date: [MM/DD/YYYY] Print Name: [MEMBER PRINTED NAME]