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Letter of Intent vs Memorandum of Understanding

A letter of intent outlines an agreement between parties before it is finalized. It resembles a contract but is usually not fully binding. LOIs can contain some binding provisions like non-disclosure agreements or a promise to negotiate in good faith. The main purposes of an LOI are to clarify key points of a complex deal, declare that negotiations are ongoing, and provide protections if negotiations fail. An LOI is typically a letter while a term sheet lists terms in bullet points but they generally have the same legal meaning. A memorandum of understanding is similar to an LOI but must be signed by all parties to outline an agreement while an LOI only needs the expressing party's signature.

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97 views2 pages

Letter of Intent vs Memorandum of Understanding

A letter of intent outlines an agreement between parties before it is finalized. It resembles a contract but is usually not fully binding. LOIs can contain some binding provisions like non-disclosure agreements or a promise to negotiate in good faith. The main purposes of an LOI are to clarify key points of a complex deal, declare that negotiations are ongoing, and provide protections if negotiations fail. An LOI is typically a letter while a term sheet lists terms in bullet points but they generally have the same legal meaning. A memorandum of understanding is similar to an LOI but must be signed by all parties to outline an agreement while an LOI only needs the expressing party's signature.

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A letter of intent (LOI or LoI, and sometimes capitalized as Letter of Intent in legal

writing, but only when referring to a specific document under discussion) is a document
outlining an agreement between two or more parties before the agreement is finalized. The
concept is similar to a heads of agreement. Such agreements may be Asset Purchase Agreements,
Share Purchase Agreements, Joint-Venture Agreements and overall all Agreements which aim at
closing a financially large deal.

LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many
LOIs, however, contain provisions that are binding, such as non-disclosure agreements, a
covenant to negotiate in good faith, or a "stand-still" or "no-shop" provision promising exclusive
rights to negotiate. A LOI may sometimes be interpreted by a court of law as binding the parties
to it, if it too-closely resembles a formal contract.

The most common purposes of an LOI are:

 To clarify the key points of a complex transaction for the convenience of the parties
 To declare officially that the parties are currently negotiating, as in a merger or joint
venture proposal
 To provide safeguards in case a deal collapses during negotiation.

An LOI may also be referred to as a term sheet or discussion sheet. The terms reflect different
styles (an LOI is typically written in letter form and focuses on the parties' intentions; a term
sheet skips formalities and lists deal terms in a bullet-point summary), but usually do not indicate
any difference under law. A contract, by contrast, is a legal document governed by contract law.
Furthermore, there is also a specific difference between a letter of intent and a memorandum of
understanding (MOU); an LOI outlines the intent of one party toward another with regard to an
agreement, and may only be signed by the party expressing that intent, whereas an MOU must be
signed by all parties to be a valid outline of an agreement. Nevertheless, LOIs are fairly often
incorrectly referred to as MOUs and vice versa
A memorandum of understanding (MoU) is a document describing a
bilateral or multilateral agreement between parties. It expresses a convergence of will between
the parties, indicating an intended common line of action. It is often used in cases where parties
either do not imply a legal commitment or in situations where the parties cannot create a legally
enforceable agreement. It is a more formal alternative to a gentlemen's agreement.

In some cases depending on the exact wording, MoUs can have the binding power of a contract;
as a matter of law, contracts do not need to be labeled as such to be legally binding.[citation needed]
Whether or not a document constitutes a binding contract depends only on the presence or
absence of well-defined legal elements in the text proper of the document (the so-called "four
corners"). This can include express disclaimers of legal effect, or failure of the MoU to fulfill the
elements required for a valid contract (such as lack of consideration in common law
jurisdictions).

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