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.
3.1
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.
5.1
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.
6.1 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.
7.1 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.
8.2 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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