Understanding Business: What is a Letter of Intent?

Although it seems to sad to admit it, there are many times in life when we are not able to guarantee the things we say or what we want to do. However, this simply is not acceptable in the business world. With that in mind, one of the most important pieces of paper, and one that has significance even into everyday life is something known as a letter of intent. Even though some aspects of business may be difficult to understand at times, the idea behind the letter of intent, and understanding it is thankfully, both important and fairly simple.

Often, when we think of business agreements, or any legally binding action, we think only of contracts and other such documents. However, this is simply not the case, and an equally important document, that also possesses legally binding characteristics is known as the “Letter of Intent”. Basically, a letter of intent is a signed, documented and witnessed letter that contains evidence of an agreement between two parties. While it may be different from a contract in many ways, there are also many circumstances in which the letter of inent is faster, more convenient, and simply a better choice than a signed contract, which can take long period of time and often comes with far more paperwork and legal foot work.


In fact, the letter of intent has become a common element for anyone who has considered making a promise as to what college they would like to attend. If a student commits in a signed letter that he or she would like to attend and is accepting the invitation of a college, than we have evidence of a letter of intent, which is binding. Simply, what this means is that a student cannot agree to go to one college and then pull out and attend another when a better offer comes along.


In addition to college, letters of intent have also popped up in broad places across the legal spectrum. Different companies may use these letters to communicate delivery or pick up promises far more quickly and efficiently than a normal contract could be used in the past. A letter of intent may also be used as an intermediate step before an actual deal or agreement takes place. For example, the owner of one business may send a letter of intent wishing to setup up a time and place for initial negotiations of a proposed deal. The letter would also state several other important factors, such as the matter to be negotiated, the parties involved, the possible limits of the deal, and any other relevant information. This, then, insures that the parties are dedicated to their meeting and that the actual deal or agreement will go far more smoothly and efficiently had it been a haphazard or unplanned affair.


However, many businesses also make mistakes when it comes to letters of intent. Specifically, many tend to leave them in far too broad or general terms. It is incredibly important to remember that the letter of intent is a legally binding contract, and it should be treated as one regardless. When a company or individual becomes lazy when laying out the basics set forth in the letter, or simply signs away and sends without proper considerations, we can have many of the same problems that we would experience in a contract that has not been properly constructed or properly read and evaluated. For this reason, it is incredibly important that the letter be made as accurate and checked as thoroughly as possible. Poorly written or constructed letters of intent can be a major legal liability, and this is simply one more reason why it is important to make sure they are as accurate, clean, and clear as possible.


While he letter of intent definitely may not be the first legally related term we think of when considering binding agreements and other documents, it is quickly becoming an important method of communication and information of intent among concerned parties. However, as useful and convenient as a letter of intent can be, it is also important that the letter of intent is used responsibly and the true meaning and significance (as well as the legally binding nature of the letter) is considered and always kept in mind and respected.

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