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What is a Letter of Intent?

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  • Written By: Michael Pollick
  • Edited By: Lindsay D.
  • Last Modified Date: 16 July 2014
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    Conjecture Corporation
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Contracts, corporate buy-outs, mergers and other business matters can become very complicated and time consuming for both sides. It may take months or even years to hammer out all of the details surrounding a proposal. Meanwhile, creditors and stockholders may start to wonder if the "other side" is genuinely interested in completing the process. This is the reason many company representatives draw up a "letter of intent" early in the negotiating stage.

A letter of intent is a document that spells out the general plans of an individual or company involved in a business deal. If a large company plans to buy out a small manufacturing plant, for example, the letter might contain a specific date for the proposed sale to take place. It might also include plans for expansion or downsizing staff levels or rehiring employees. It is not the same as a legal contract, but an official letter of intent can be treated as a demonstration of good faith.

One of the major reasons for seeking a letter of intent from the other party is to provide investors with tangible proof of the deal or potential takeover. It is not unusual in the business world to make or receive numerous offers for lucrative deals or contracts. Most of these informal maneuvers never materialize into real agreements. Having this document allows a company to arrange for additional financing or report the new development to employees and stockholders.

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The term "letter of intent" can also apply to other areas besides business and industry. Recruiters for collegiate sports teams will often visit prospective players at home in order to promote their school's athletic program. Typically, a very talented athlete receives a number of these visits from rival schools. At some point before the beginning of the school year, the player must sign a letter of intent that indicates his or her future plans. Having a star prospect sign this letter for a specific school is often seen as a great success for the recruiter.

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Discuss this Article

anon948921
Post 6

I just got a Letter of Intent. I need to search for the answer. Then it will be confirmed.

anon345952
Post 5

Can a request to confirm a letter of intent be treated as a contract or purchase order? Is the date of commencing work to be counted from date of issuance of LOI or from the date of signing the contract?

anon189191
Post 4

A letter of intent means that you're going to be kicked out of school for a couple of weeks and then you come back too school.

anon40847
Post 2

what about if you find someone else that is cheaper than the first guy you gave a letter to? the first guy did not respond to any correspondence then you found a new guy...

dudla
Post 1

A letter of intent is not the same thing as the contract that the letter of intent refers to. That's because the letter of intent doesn't have all the binding terms ironed out. Still, you can breach a letter of intent. If a party to the letter of intent fails to negotiate a contract in good faith, the other party may be able to successfully sue for breach of the letter of intent. Historically, courts usually didn't enforce letters of intent, though enforcement of such contracts accompanied with the award of monetary damages has become more common. For more details on how this might relate to your particular situation, consult a legal professional.

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