Letter of Intent Format for a Business Proposal / How to Make Letter of Intent for a Business Proposal

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Letter of Intent Format for a Business Proposal / How to Make Letter of Intent for a Business Proposal

Letter of Intent for a Business Proposal 

This Letter of Intent (“LoI”) is entered into by and between 

[name]

[company registration number]

[address] 

(hereinafter referred to as “Party A”)

 

and

 

[name]

[company registration number]

[address]

 

(hereinafter referred to as “Party B”)

 

(hereinafter referred to individually as “Party” and collectively as “Parties”)

 

 

1.     Background

 

1.1   The LoI summarizes the Parties’ understanding regarding the contemplated formation of a jointly owned company to design, manufacture, market and sell [products] (“Products”) worldwide (“Company”).

 

1.2   The purpose of the LoI is to establish a basis for future discussions regarding a definitive agreement for the formation of the Company (“Definitive Agreement”). The LoI does not create any binding obligation, expressed or implied, on the Parties, except as set forth in Articles 3 through 8 hereof.

 

2.     Key Terms

 

2.1   The Parties shall form a [form of company] located in [city and country] with the sole purpose of designing, manufacturing, marketing and selling Products worldwide. Party A shall own [number] % and Party B [number] % of the share capital of the Company.

 

2.2   The initial registered and paid-in share capital of the Company shall be [amount and currency], of which Party A will contribute [number] % and Party B [number] % in cash and in kind. The Parties’ contributions in kind shall consist of Party A’s [description of assets] and Party B’s [description of assets]. The Parties shall not be required to make any further capital contributions to the Company.

 

2.3   Party A shall contribute its [description of expertise] and Party B shall contribute its [description of expertise] to the Company. The Parties shall dedicate such time and effort to the formation and operation of the Company as is reasonably necessary to secure a solid platform for growth.

 

2.4   The Company shall have a board of directors responsible for the overall and strategic management of the Company. The board of directors shall consist of [number] directors. Party A shall nominate [number] directors, and Party B shall nominate [number] directors. The general meeting of the Company shall elect the directors nominated by the Parties and [number] additional directors. The chairman of the board of directors shall be elected by and among the directors.

 

2.5   The Company shall have a general manager responsible for the day-to-day management of the Company. The general manager shall be appointed by the board of directors of the Company.

 

2.6   All decisions of the general meeting of the Company shall be taken by a simple majority vote unless applicable law requires a special majority vote. All decisions of the board of directors of the Company shall be taken by a simple majority vote with the chairman having a casting vote in case of an equality of votes.

 

2.7   A valid decision of the general meeting or of the board of directors of the Company requires the presence of more than [number] % of the share capital or of the directors of the Company. The Parties commit to attending all general meetings and all meetings of the board of directors unless prevented by special circumstances.

 

2.8   The Parties, and persons or companies having a decisive influence on a Party’s financial and operational decisions, shall be prohibited from competing with the Company as long as they, directly or indirectly, own shares in the Company and for a period of [number] years thereafter.

 

2.9   The Parties shall have a mutual right of first refusal on any sale or other transfer of shares in the Company. The price of the shares subject to a right of first refusal shall be equal to the price offered by a third party in good faith or, in the absence of a third party offer, the market value of the shares as determined by an independent auditor.

 

2.10 If a Party wishes to sell all of its shares in the Company pursuant to a good faith third party offer, the other Party shall, upon request, be required to sell all of its shares in the Company to such third party on the same terms and conditions. If a Party wishes to sell all of its shares in the Company to a third party, the other Party shall be entitled to sell all of its shares in the Company to such third party on the same terms and conditions.

 

3.     Definitive Agreement

 

3.1   Promptly after execution of the LoI, the Parties shall enter into good faith negotiations for a Definitive Agreement containing such terms and conditions as are customary for the formation of a jointly owned Company of the contemplated nature, including, without limitation, a business plan for the Company for the first 3 (three) years of its operation.

 

4.     Exclusivity

 

4.1   Until the date of termination of the LoI, the Parties shall not enter into discussions with any third party regarding a cooperation to design, manufacture, market and sell Products.

 

5.     Confidentiality

 

5.1   Except as required by law, each Party agrees that it shall not disclose any Confidential Information to any third party except its advisors who are bound by a duty of confidentiality and that it shall not use any Confidential Information other than in connection with its evaluation of the contemplated formation of the Company.

 

5.2   For purposes of Article 5.1 hereof, "Confidential Information" means any information about the other Party provided hereunder, the contemplated formation of the Company, and the LoI except information which: (i) is generally available to or known by the public other than as a result of improper disclosure by a Party, or (ii) is obtained by a Party from a source other than the other Party, provided that such source was not bound by a duty of confidentiality to the other Party with respect to such information.

 

6.     Costs and Expenses

 

6.1   Except as may be set forth in any Definitive Agreement, each Party shall bear its own costs and expenses incurred in pursuing or consummating a Definitive Agreement and the formation of the Company, including, but not limited to, legal and other professional fees.

 

7.     Term and Termination

 

7.1   The LoI shall enter into force when it has been signed by both Parties and shall terminate on the earlier of: (i) the date of execution of any Definitive Agreement, and (ii) [date] unless the Parties agree to extend the date. The Parties shall have no claim against each other as a result of termination of the LoI for any reason.

 

8.     Miscellaneous

 

8.1   The LoI contains the entire understanding of the Parties with respect to the contemplated formation of the Company. The LoI may not be amended except in writing signed by both Parties.

 

8.2   Any disputes arising out of or in connection with the LoI which cannot be settled amicably shall be resolved by a court of competent jurisdiction in accordance with the laws of [country] excluding conflict of law principles.

 

8.3   The provisions of Articles 5.1, 5.2, 6.1, 7.1, last sentence, 8.2 and 8.3 hereof shall survive termination of the LoI for any reason.

For and on behalf of                                                               For and on behalf of

Party A                                                                    Party B

 

 

Name:                                                                      Name

Title:                                                                         Title:

Date:                                                                        Date:

 

Guidelines for letter of intent 

0. Parties

The names, business registration numbers and addresses of the parties must be correct. Businesses in the same group often have similar names, for example, but whether you conclude a Letter of Intent ('LoI') with one or the other company is not necessarily irrelevant. One company may, for example, be rich and another poor.

 

1. Background

Clause 1.1: You should describe what the discussions with your partner are about in the introductory part of the LoI. This could, as in this example, concern discussions about setting up a joint company. The discussions could also concern the conclusion of a patent licence agreement, the acquisition of a business, delivery of services or products or something completely different.

 

Clause 1.2: Clauses 3-8 in the LoI are binding on you and your partner, but the LoI does not impose any other obligations on you or your partner. This means that, although you may sign the LoI, you are not obliged to realise the project that you are discussing and which is described in clause 2 of the LoI, unless you conclude a binding agreement on this.

 

2. Key terms

Clause 2.1-2.10: The content of the clauses will vary depending on what the discussions with your partner concern. If the discussions, as in this example, concern the establishment of a joint company, the clauses will normally specify, for example, the size of each party's ownership share of the company and how much influence each party is to have on the decisions made in the company.

 

However, the specific content may – and will often – deviate from the content of this example of an LoI.

 

3. Definitive agreement

Clause 3.1: The LoI is a precursor to a definitive agreement on the subject of the discussions with your partner. The LoI therefore normally contains a binding obligation on both parties to start negotiations on a definitive binding agreement.

 

4. Exclusivity

Clause 4.1: In many cases, negotiating a definitive binding agreement and investigating the possibilities of realising the subject of the discussions with your partner can be a costly affair, including, for instance, your own internal costs and expenses for professional consultants.

 

To avoid unnecessary costs, the LoI therefore normally contains a stipulation on a binding obligation on both parties to refrain from negotiating with anyone else about the subject of their negotiations for as long as the LoI is in force.

 

5. Confidentiality

Clause 5.1 and 5.2: When negotiating with your partner, you will inevitably have to disclose information to each other which you consider confidential and which you do not want to be used for unrelated purposes or disclosed to third parties. The LoI therefore normally contains a stipulation on a binding obligation on the parties to treat information received from each other as confidential.

 

Regardless of whether the LoI contains a confidentiality provision, however, you should never disclose more confidential information to your partner than necessary. As soon as you disclose information, you lose control of what happens with it from then on.

 

6. Costs and expenses

Clause 6.1: As mentioned above, negotiating a definitive agreement and investigating whether it is possible to realise the subject of your discussions can be associated with costs for you and your partner. The LoI therefore normally contains an actual binding provision which defines how the costs are to be borne by the parties.

 

The costs may be distributed in the way that you and your partner prefer, but it is assumed in the LoI that you each bear your own costs.

 

7. Term and termination

Clause 7.1: The LoI normally contains an actual binding provision specifying the time of expiry of the LoI. You and your partner cannot accept, for example, that the provision in clause 4 stipulating that you are prohibited from negotiating with third parties continues indefinitely. Logically, the LoI will expire when and if you and your partner conclude a definitive binding agreement, but in case this does not happen, the LoI should indicate a specific date on which the LoI expires at the latest.

8. Miscellaneous

Clause 8.2: It must appear from the agreement which country's law is to apply in the event that a dispute arises which the seller and the buyer are unable to settle amicably. If both you and your business partner are owners of Danish companies, Danish law would be the natural choice. If your business partner’s company is not Danish, however, you might insist on Danish law, and your business partner on the law of the country of his company. In such a case, choosing a third country's law could be an option.

 


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