How to sign a letter of intent
To sign a letter of intent, you first must clearly understand whether you actually need it to be signed, then choose the right time during your negotiations as well as make all the required preparations before signing.
What is a letter of intent?
A letter of Intent (LOI) is a special type of agreement that doesn’t always require a signing.
It acts as a way for one party to deliver their intentions to buy or sell something.
At first glance, it looks like an expression of goodwill that doesn’t need any proof, right? Not quite. Most often, a letter of intent is aimed at buying or selling a business, whole or in part.
And there are several ways in which signing of LOI can help any of the parties involved:
- Once an LOI is used as a matter of documenting the mutual obligations in an agreement, signing is a way to establish the level of agreement at a certain moment.
- Signing is always a way to show the other party that you’re serious. In most cases, however, there is no need for an elevated demonstration of seriousness.
- In cases where the deal involves a substantial six or seven-figure price tag, there is almost always a costly due diligence proceeding. A signed LOI from the seller can act as a motivator for the potential buyer to apply appropriate funding and effort toward due diligence.
There is a certain harmful potential to LOI signing as well — for example, in lengthy, drawn-out deals, like the million-dollar ones mentioned above.
When the LOI is signed too early in the negotiation process, there is a high risk to record conditions that will turn out to be less advantageous as further negotiations progress, and, even more important, during due diligence.
What’s included in an LOI?
- A statement of a preliminary responsibility of one party to another.
- An outline of the main terms of furthering the deal.
- Some details like requirements, milestones, or stakeholders are included — most often, these are outlined with broad strokes.
- Burdensome factors like non-disclosure or non-solicitation agreements.
- Any other information? The letter of intent isn’t necessarily a document requiring a strict form, so it could contain any information its creator considered useful for a particular case.
Steps on how to sign a letter of intent
Now, let’s cover how to sign a letter of intent.
Step 1. Checking what the LOI contains
This stage is about the conditions described in the LOI. You must be sure that they’re acceptable and you won’t change your mind once you sign the document.
If you have to craft your own letter of intent, it’s better to start with any ready-made template and then modify it according to your needs.
Step 2. Understanding a deeper sense of LOI
Despite the fact, LOIs usually haven’t something legally binding, some of the binding aspects exist.
For example, LOI can include points about exclusivity, or non-disclosure.
The nature of an LOI can play a cruel joke if the parties who sign the agreement do so without sufficient discretion.
To avoid such surprises when you have become obliged just after a friendly-looking LOI was signed, you should look for (or force the second party to include, or add into your own letter of intent) the explicit statement about the non-binding character of the agreement.
Step 3. Choosing the appropriate moment
As we said before, an LOI signed too early can act as a barrier to even reasonable changes of conditions in the future.
However, if you don’t act quickly enough, it could be too late to motivate the other party to do something or to show that you’re indeed serious.
That’s why it’s very important to choose the right time frame for signing the letter. For every single case, however, this time frame is unique.
Step 4. Signing itself
Once your document is ready, containing all that is required and when the timing is appropriate, the one thing remains — just the signing itself.
To make it quick and secure, you can use PandaDoc. Start with just editing our free template or with uploading your ready-made LOI.
Then, add the contractual data of the other party.
Once that is done, you can easily sign the LOI electronically and ask the second party to do the same.
All your communication will remain fully secure and confidential.
Moreover, thanks to an advanced tracking system, you’ll be instantly notified about each interaction with the document.
Using PandaDoc for eSigning your LOI
Whether your document is created with document management software (as opposed to the old-fashioned way), signing your LOI electronically is a much better method than relying on a paper form.
Once you’ve decided to go the digital route, you should find out which eSigning tools your document management system offers.
For example, PandaDoc offers its own eSignature feature for free.
After selecting a specific file, feel free to register at PandaDoc, then upload your document, and use the same feature for free with your just-uploaded LOI.
The registration is free of charge and comes with a 14-day trial period to test the waters.