Letter of Intent (LOI)
A letter of intent is a collection of key points of an agreement between two parties that are negotiating a contract; in this respect a letter of intent is simply the agreement signed prior to the final contract. Without a certain formality, the letter of intent is meant to acknowledge the will of the parties to carry out in the near future all the steps necessary to perform a contract that gives way to a transaction in international business. It involves a reciprocal wills statement, without binding effect, but with high ethical value to the parties who sign. Among the purposes of the letters of intent are include:
- Clarifying the key points of an operation for the convenience of the parties.
- The statement that the parties are currently negotiating.
- Provides guarantees if the deal collapses during negotiation.
Another characteristic of the letters of intent is that it can resemble a written contract but is usually not binding on the parties in their entirety. However, the majority of these agreements, contain provisions that are binding, such as non-disclosure and non-compete agreements. There are different types of letters of intent in international business. The most common are: Letter of Intent for International Sale, Letter of Intent for International Distribution and Letter of Intent for Joint Venture.