An investment letter of intent (or letter to invest) is made by a person or entity to show their intention to invest in a certain business. In return for a particular amount of money, an investor gets partial ownership of a business or real property. The letter sets forth the specific terms of the investment including the amount to be contributed, the business to be created, and the closing date of the transaction.
The document might be both binding and non-binding. If it has legal force, the parties might determine the main terms of the deal in the letter and not create an investment agreement in the future. To learn more about letters of intent, check our full article: https://formspal.com/letter-of-intent-template/.
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.
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:
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:
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.
When writing a letter of intent to make an investment, the effectiveness can be achieved by following certain tips:
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