Define: Letter Of Intent

A letter of intent (LOI) is a document expressing the preliminary understanding between two or more parties regarding a proposed transaction or agreement. While not usually legally binding, an LOI outlines the key terms and conditions of the proposed deal, including the intentions of the parties involved, the basic terms of the transaction, and any other important details. It serves as a starting point for negotiations and helps clarify the parties’ intentions before formalizing a final agreement. LOIs are commonly used in various business transactions, such as mergers and acquisitions, real estate deals, and partnerships, to outline the initial terms of the proposed arrangement and facilitate further discussions between the parties involved. Although an LOI is generally not legally enforceable, it can provide a framework for the subsequent drafting of a formal contract or agreement.

A letter of intent is a document written by one company and sent to another indicating a desire and ability to do business. The issuance of a letter of intent often precedes formal negotiations of a merger or acquisition and can potentially impact the share price of both the letter of intent issuer and recipient. Although a letter of intent is not a contract or legally binding, sending a letter of intent generally indicates serious interest. Companies issuing a letter of intent typically disclose this information in a Form 8-K filing with the SEC. Investors contemplating a large investment in a managed fund they plan to make in increments may send a letter of intent in advance of the purchase to qualify for a reduced sales charge.

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This glossary post was last updated: 29th March 2024.