1. WHAT IS A LETTER OF
INTENT?

2.  A letter of intent (LOI) is a document that
outlines the details of a corporation’s intention
to carry out a specific corporate action.
 It is a letter that acknowledges the willingness
of two companies to enter into business.

3.  A letter of intent differs from a contract in the
sense that it is not legally binding on the
parties completely and hence, cannot be
enforced.
 However, some LOIs do contain provisions
which are binding such as a non disclosure
agreement or a covenant to negotiate in good
faith.

4.  Letters of intent are conceptually similar to
heads of agreement in the way that the latter is
also a legally non – binding
document, outlining only the main relevant
issues of the agreement.
 Examples include Asset Purchase
Agreements, Share Purchase Agreements and
Joint - Venture Agreements.

5.  Generally, a letter of intent is issued by the
Management and Legal Council of the
concerned corporation.
 It can also be issued by a mutual fund
shareholder to express his intention to invest a
certain sum of money at a certain time, so that
he can avail the benefit of reduced sales
charges.

6.  A letter of intent is often loosely referred to as
a memorandum of understanding (MOU) but
the two differ significantly.
 A LOI essentially outlines a bilateral
agreement and requires only that party which
expresses the intention to carry out business
with the other, to sign the letter of intent.
 A MOU outlines a multilateral agreement and
hence requires the signature of all the parties
involved.

7.  Sometimes, a letter of intent is referred to as a
term sheet also, mainly because they do not
vary much in legal terms but only in the way
they are structured.
 LOI is written in a letter form and emphasizes
on the intention of the parties.
 A term sheet is in a bullet point summary form
and provides a list of the deal terms.

8. SOME EXAMPLES WHERE A
LETTER OF INTENT IS USED
 During a merger and acquisitions process: to
reveal the specific terms of the deal – whether it is
a cash or stock deal.
 In construction and engineering: when the parties
need to start working before the agreement of the
formal contract terms or the formal contract price.
 In real estate cases where the real property in
question is not listed on a multiple listing service:
to officially begin the process of purchase by
informing the owner of the party and other
interested parties.
 In solicitation of government grants: to allow the
agency staff to estimate the workload and plan the