Drafting letter of intent for entering into M&A deal

First of all, letter of intent is necessary to pre-fix the terms and conditions of future transaction, meanwhile reserving the right to refuse from entering into it. For instance, it is convenient if the seller is negotiating with a few potential business buyers at the same time.

Secondly, a written agreement of intent can be used as proof that the parties actually have been negotiating the transaction. Also, LOI may be necessary if the parties have disagreements in execution of the main agreement, which was concluded on the basis of letter of intent. Thus, when interpreting the main contract, the court may also refer to the letter of intent in order to establish the actual general will of the parties.

The letter may be drawn up in any form. As a rule, it indicates what kind of deal the parties plan to conclude and what needs to be done (preparation of documentation, carrying out a research, etc.).

The agreement may contain provisions on how to conduct negotiations (the dates of planned meetings of representatives, the procedure for allocating expenses, etc.). However, such an agreement should not include conditions that limit the parties’ liability for unfair actions.

In order not to be legally bound to conclude a contract, it is recommended to explicitly indicate in the LOI that it is not a preliminary contract and does not impose an obligation to conclude the main contract in future.

The agreement of intent may also provide for an exclusivity clause, according to which the party undertakes not to enter into negotiations on a similar subject matter with third parties within certain period of time.