Letter of Intent: The Components
A letter of intent is typically written when two parties are considering doing business together. Sometimes one party writes the letter of intent, while sometimes both parties write their own. It is a way for potential business partners to become accustomed to how they might potentially work together, and to ascertain the desires of both parties.
Generally a letter of intent should include the following:
Letter of Intent Component #1: Binding
The letter of intent should state whether or not it is binding; meaning: do both parties agree to be held accountable for the contents of the letter of intent? If so, then the letter of intent becomes the precursor to the actual agreement, and nothing in the contract can contradict the language in the letter of intent.
Letter of Intent Component #2: Basic Scope of Business Partnership
The first paragraph of a letter of intent should describe the basic scope of the partnership: type of business, length of contract, basic terms, etc. It doesn’t need to specifically detail every aspect of the business, but it should give the big picture for the association.
Letter of Intent Component #3: Predetermined Decisions
Next, the letter of intent should state the terms and conditions to which both partners have already agreed. For example, if you know that the profits from the business venture will be split 50-50, that should be included in this section of the letter of intent.
Letter of Intent Component #4: Desired Terms
The party writing the letter should then describe the ideal partnership agreement from his or her perspective. This is not something to which you have already agreed, but something that will undergo negotiation later. Feel free to be as selfish as you want during this section because you most likely will not get everything that you want.
Letter of Intent Component #5: Disagreements
If you and your prospective business partner have already disagreed over a potential issue, state it here. Explain that you have not agreed upon the exact terms of this issue, but that it is currently on the table.
Letter of Intent Component #6: Method of Resolution
How will you and your business partner(s) reach resolution on the issue that have not yet been decided? Detail a date and time for resolution, and explain what will happen if resolution cannot be reached.
Letter of Intent Component #7: Statement of Intent
The final section of your letter of intent should give your statement of intent. Reiterate your desire for a business relationship, and explain what needs to be done in order to solidify the agreement.
