Investment Letter of Intent

Why Create an Investment Letter of Intent?

If a letter is non-binding for the parties, it gives them the opportunity to discuss the main terms of the deal, and if they agree to these conditions, conduct a more comprehensive formal agreement.

It is also an opportunity for the company that seeks investing and the investor to create a document that would act as the investor’s formal notice and become valuable evidence in case the parties have disputes about the investor’s intentions.

What Should an Investment Letter of Intent Include?

An investment letter of intent should include the basic terms of making a monetary contribution to a business.

There are the main conditions that should be described in a letter of intent by an investor and a company’s principal shareholders:

1. Investment. The letter should tell about details and key aspects of the investment – amount of the contribution, percentage of ownership given in return for the investment, idea behind the investment, etc.
2. Financing. An investment LOI should specify whether the letter depends on the investor’s ability to obtain financing (which makes a letter conditional) or not (in case of non-conditional letter).
3. Investment terms. The letter should state that the investor has a certain amount of time to conduct due diligence before closing the deal. It might include communicating with third parties.
4. Confidentiality. The parties should agree in the letter that the details regarding the investment are kept confidential. The parties should also agree that the information about the deal might be released only under the written consent.
5. Closing terms. The letter should have a provision about the closing date, which is the date of paying the investment in full or when an ownership to a part of the company’s stock goes to the investor.

How to Fill Out an Investment Letter of Intent

A letter of intent is usually written by the investor interested in offering their funds for investing into a business or an entrepreneur’s idea.

Step 1 – Effective date and subject

The letter should start with the effective date and subject that indicates the purpose of the letter.

Step 2 – Investor and investment

The letter should state the name of the investor and the business entity that will get the funds.

Step 3 – Investment amount

This section should tell the amount of money that will be payable by the closing date.

Step 4 – Principal shareholders

This paragraph should specify the names of the stockholders with a significant ownership interest in the business that is about to get investment.

Step 5 – Shares

The section should specify the amount of shares to be bought.

The important thing to mention here is that the shares are free and clear of all liens, charges, and encumbrances.

Step 6 – Transaction

Further, the letter should tell what amount of ownership the investor will get for their investment.

Step 7 – Financing

The letter should tell whether or not the investment is dependent on the investor’s ability to obtain financing. If it is, the terms under which the payment will be made should be specified.

Step 8 – Access to information

The next section should tell that the investor and authorized third parties should have access to the information about investment. It should also state that the investor should keep the information confidential unless the principal shareholders give consent to release information.

Step 9 – Investment conditions

The letter might indicate what period of time the investor will have for checking the provided materials and deciding on entering into a formal agreement with principal shareholders (if the letter is binding).

The section might also include another conditions of the investment, for instance:

• the investor has the right to review and approve the materials provided by the principal shareholders
• the investor should have the opportunity to perform due diligence
• the investor has to be able to communicate with necessary third parties, etc.

Step 10 – Closing

In this paragraph, it should be mentioned when the closing will occur.

Step 11 – Closing costs

The paragraph needs to indicate whose responsibility will be to pay costs connected with the closing. For instance, the letter might state that the investor and principal shareholders will each bear their own expenses in connection with the LOI and the purchase and sale of the shares.

Step 12 – Confidentiality

The next section has to tell that the negotiations regarding the investment between the parties should be confidential. The document might state that only mutual consent of the parties or law requirement might lead to the release of this information.

Step 13 – Formal agreement

It should specify in what time period the formal agreement between the parties should be created.

Please note that it is relevant for binding investment letters of intent.

Step 14 – Good faith negotiations

Here, the principal shareholders and investor agree to act in a diligent manner and enter into “good faith” discussions with the intention to complete a formal investment agreement and close the transaction within the agreed timeframe.

Step 15 – Exclusivity

Another important element of the investment letter is the consent of the principal shareholders to not communicate with third parties regarding the sale of shares, only in the case there are any existing agreements.

Step 16 – Standstill agreement

The letter should have the section about the principal shareholders’ obligation to not agree not to sell any portion of investment to third parties.

Step 17 – Currency and proper law

The letter should tell what currency and proper law the parties should use.

Step 18 – Electronic means

The letter should tell what will be considered the execution and delivery of the letter of intent. It would be good to specify that sending the letter through electronic means that allow for creating a printed version of the letter are suitable for the receiving party.

Step 19 – Severability

It is important to specify that if any wording or section of the letter is invalid, all other clauses should not be affected by that.

Step 20 – Acceptance

The last clause should indicate what constitutes the acceptance of the letter. For example, it might be signing and returning a duplicate copy of the letter to the sender. The date by which it should be done has to be mentioned as well.

Step 21 – Signatures

The letter is considered executed once it has the signatures of the parties. Both signatures of the investor and principal shareholders should be included.

If you need an investment letter of intent, use our online document builder. By answering a set of questions, you will get a customized document adhered to your specific needs.

Tips for Individuals or Entities Creating an Investment Letter of Intent

When writing a letter of intent to make an investment, the effectiveness can be achieved by following certain tips:

• The letter of intent should be thoroughly read by both parties
• The signature of the prospective investor is one of the main requirements for an investment LOI
• Both parties should have original or duplicate copies of the LOI with the signature of both investor and principal shareholders
• Make sure to keep the signed letter of intent in a secure location such as a fireproof safe or safe deposit box

Sample Investment Letter of Intent

From: Dean Lion
833 8th St.
Fort Worth, TX 76112

April 4, 2021

To: Shon Buzz
CEO of the H&Co Corp.
943 Smith St.
Cleburne, TX 76031

RE: Purchase of Shares of the H&Co Corp.

The following letter sets out the basic terms upon which I would be prepared to purchase the Shares. The terms are not comprehensive, and I expect that additional terms, including reasonable warranties and representations, will be incorporated into a formal agreement to be negotiated. The basic terms are as follows:

1. Buyer: Dean Lion.
2. Investment amount: $300,000 (three hundred thousand dollars)
3. Principal Shareholders: Shon Buzz and any other shareholders of the H&Co Corp. (“the Sellers”).
4. Shares: 50% of the issued and outstanding shares of the H&Co Corp. The shares are free and clear of all liens, charges, and encumbrances.
5. Transaction: The Buyer and Sellers will enter into a business combination whereby the Buyer will make the Investment in exchange for 50% of the issued and outstanding shares of the H&Co Corp.
6. Structure: To facilitate the closing, all parties agree to do their best to formulate a formal agreement that:
– is compliant with all the federal and state regulations;
– minimizes the adverse tax consequences
– is cost-effective
7. Financing. The Buyer has made it known that this Letter of Intent is conditional on their ability to obtain financing. The terms of the financing are taking a bank loan for half of the sum of Investment, which is $150,000 (one hundred fifty thousand dollars).
8. Access to information. After the execution of this Letter of Intent, the Buyer should have full access to any and all information about the H&Co Corp. The Buyer should keep the information confidential unless the Sellers give their written consent.
9. Investment conditions. The Buyer should enter into the formal agreement within 30 days after receiving all the needed materials regarding the H&Co Corp. from the Sellers.
10. Closing. The Closing, that is, the moment when the Sellers exchange the Investment for the amount of $300,000 (three hundred thousand dollars), should take place on May 4.
11. Closing costs. The Buyer and Sellers will each bear their own expenses in connection with the Letter of Intent and the purchase and sale of the Shares.
12. Governing laws. This letter of intent should be governed by the laws of the state of Texas.
13. Acceptance. If you agree to the above-mentioned terms, please sign this Letter of Intent and return the duplicate copy within five (5) business days after the delivery.

The Buyer                                                                                  Date

The Seller                                                                                  Date