Letter Of Intent

In the world of business and commerce, it is considered to be a daily task for an organisation to enter into negotiations with other business entities and consumers. Individuals who are familiar with negotiations like buying of property from builders, or applying for a scholarship from a foreign university, may be introduced to various ways in which a proposal is made. A letter of intent is one such medium of sending an initial proposal that culminates in a contract. It can be rightly described as the first step in a contract.

The Indian Contract Act, 1872, says that an agreement consists of a proposal and acceptance. It says that a proposal is made when a person expresses his willingness to another person in doing or abstaining from doing an act for the purpose of obtaining the assent of the other person. The Act says that the proposal should be communicated to the other person without ambiguity. Thus, we can consider a letter of intent as a way to legally communicate the intention of a party to enter into a contract with the recipient. Such communication acts as a way to delimit the liabilities of the parties and set the right expectations before entering into the actual contract. It can also be used as an evidence in case any disputes arise between the parties in future.

What Is A Letter Of Intent?

A letter of intent is a document through which a party communicates to another party their intention to enter into a contractual relationship. The Letter of Intent (LoI) may be sent through any legally recognised medium such as conventional mail, electronic mail where the contents may be archived for future use. It serves as a medium of understanding the exact requirements of one party and helps the other party to ascertain whether or not to enter into such relationship as proposed in the letter of intent. A letter of intent may be sent also as a response to an advertisement published by the recipient.

What To Include In A Letter Of Intent?

A Letter of Intent is in reality- a letter. It is drafted in the format of a business letter after including details of the sender and the proposed business relationship along with the intended consideration. The letter of intent also includes the duties to be performed by the receiver in the event they accept the proposal made by the sender.

It may include details like:

Address

The sender must identify himself and specify either the registered office address of the business in case of a company or the regular place of business in case of other business entities.

Intended Person

The particular person to whom the letter of intent is addressed should be mentioned. It is usually a person with decision making powers. For example, sales manager of a company.

Introduction

The sender may introduce the particulars of the company sending the letter of intent and go on to mention the circumstances where they became aware of the receiving company and their services. Then, they can mention that such services match the requirements of the sending company and that they would be interested to enter into an agreement with them on mutually agreeable terms.

Nature Of Product/Service Needed

The sender may specify the exact nature of the intended relationship and the type of products or services that are to be provided by the receiver.

For example:
a)1000 units of dye springs made of A grade stainless steel
b) 60 temporary manpower for visitor registration at international exhibition

Consideration

The amount which the company or entity is willing to pay for availing the services need to be mentioned clearly including details like payment release cycles, unit of currency etc.

Time Limit

The sender may mention the time frame within which the receiver has to respond in order to avail the benefits of the proposal made. Any delay may lead to revision of price offered by the sender.

Non Disclosure

The sender may require the buyer not to divulge the contents of the letter of intent to third parties in the event it is made into a contract.

Non-Solicitation

A non-solicitation clause may be added to prevent the parties from soliciting business from each other’s clients or from hiring each other’s employees in case a contract is signed.

Disclaimer

A disclaimer may be added to clarify the nature of the letter, which is a proposal and not an agreement. An absence of disclaimer can add enforceability to some parts of the letter of intent.

Get Your Own Letter Of Intent Drafted At LegalDesk.com

A letter of intent is a great way to start a lucrative business relationship with a third party. The challenge lies in making use of the brief format of a letter to communicate complex terms and conditions effectively. We, at LegalDesk, believe in making an impression with our documents. Each bit of your details, including requirements, will be scrutinised before preparing the document. All you need is to sit back, relax and watch your letter of intent turn into a fruitful contract.