| Deal points in a Letter of Intent are typically non-binding; however, they frame the proposed deal, and it can be difficult to re-negotiate major points. For example, you should not “agree” in an LOI to structure the acquisition as an asset sale, or a stock sale with a 338 (h)(10) election, until you discuss the tax effects of those choices with your CPA. Picking the wrong structure could result in your paying much higher taxes, and the other party will be reluctant to surrender any tax advantage they have gained. The amount a seller will actually net is not the gross amount listed in the LOI. Although it is natural to want to move on to the formal agreement, spend some time on your LOI’s to make sure you have the terms right. The transaction will move faster if the LOI is not ambiguous or missing critical details. This will also help avoid a misunderstanding a month later that kills the deal. Knowing these points will make you better prepared for your next LOI so that you can approach the deal with confidence and reach your goals. Extra Knowledge: LOI’s do also contain certain provisions that traditionally are binding, such as exclusivity or “no-shop” clauses, expenses, and governing law. These are usually contained in the second half of the LOI. Please be aware that you can be legally bound by these clauses even though you thought you were signing a non-binding LOI. |