#RVABizLaw Tip of the Day: Using a Letter of Intent to Jumpstart a Small Business Acquisition Deal

Buying or selling a small business is a process.  Before investing the time and expense of drafting a full-blown acquisition agreement, parties will often prepare a preliminary document, typically referred to as a letter of intent (also referred to as an “LOI”), outlining the key terms and conditions of the deal. The value of an LOI, while not typically a legally binding document (with some exceptions to protect confidentiality and exclusivity in certain situations), is that it provides a helpful roadmap  guiding the parties through the process to a successful closing and, at least symbolically, represents the parties’ “handshake” deal . Issues often addressed in an LOI for a small business acquisition include:

1. Purchase Price
2. Structure of the deal (asset sale vs stock sale)
3. Payment terms
4. Summary of assets included or excluded from the deal
5. Real estate transfer or lease issues
6. Employment or consulting agreement issues concerning the seller’s involvement with the business post-closing
7. Restrictive covenant issues (noncompete, nonsolicitation)
8. Confidentiality issues
9. Exclusivity issues (no shop clause)
10. Deposit/escrow payment requirements
11. Due diligence issues (timing, scope of review)

This is not meant to be an exhaustive list because every deal is unique and, rest assured, there will always be unexpected obstacles to navigate before (or after) closing.  Still, a carefully drafted LOI can increase the probability that a successful deal ultimately will be consummated.  If you need assistance with your next small business acquisition or sale, reach out anytime.