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Letters of Intent — Are They Worth It?

Who would think a non-binding document could create so much stress when you are putting a deal together. A letter of intent (LOI) is such a document. Simply stated, an LOI which may also be referred to as a “memorandum of understanding (MOU)” or “term sheet” expresses the intention of two parties to do something. While the purpose of such letters is to facilitate transactions by proactively addressing potential areas of disagreement, the question of whether to use an LOI can itself become a point of contention.

Letter of Intent

Opposing Views

Whether an LOI is worth the time and trouble stirs opposing views:

  • Pro-LOI: This side views the LOI as an efficient, inexpensive and quick way to determine whether the deal is even worth the time of the two parties to engage in negotiations.
  • Anti-LOI: This side thinks the better approach is to draft a more detailed deal document from the very start and then sort out any issues.

Disagreement also arises over the