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Last revision: 11/03/2023
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A Letter of Intent, also sometimes called a Letter of Understanding, is a written document in letter form that is sent by a party looking to build a final contract. The letter is sent to the other potential contract party and it usually contains the bare bones of the agreement between the parties. Often, the terms in a Letter of Intent have already been discussed between the parties and the actual letter is just a written memorialization of a previous conversation. A final contract will contain a lot more information than the Letter of Intent, but sending a letter like this is good practice between business parties before the finalization of a contract.
Keep in mind that a Letter of Intent isn't the actual contract - in other words, it's not the piece of paper that will actually create the underlying agreement - it's just the first step for a party to open negotiations about a contract that has already been discussed.
This Letter of Intent is quite simple, as it only needs to contain the basic information that will end up being the building blocks of the contract. In it, the underlying facts about the contract transaction are described, as well as the parties' identifying details.
How to use this document
This document can be used for any party that would like a written note of understanding to send to another party before a contract is finalized.
In this document, the parties names and contact information (like mailing addresses) will be entered. Then, basic, but important details of the contract will be entered, such as the last date of discussion on it, the underlying transaction, the pricing information, and confidentiality provisions.
After this document is filled out, it should be printed and signed. The party sending it should then make a copy, keep the copy and send the original to the other potential contract party. The party to whom it is being sent should ideally sign it as well and then a final contract can be drafted up later. If the party to whom it is being sent does not sign it, it means that something has gone wrong in the negotiations and the parties haven't agreed to anything.
Letters of Intent are a precedent to contracts in the United States, but they are not binding agreements. This Letter of Intent especially makes clear that neither party is agreeing to be bound, and that the Letter of Intent is just the beginning of negotiations.
That said, contracts in the United States can be subject to both Federal laws and specific state laws, depending on the contents and subject matter of the contract. State laws govern general contract principles like formation and mutual understanding. Federal laws may restrict what services can be contracted for (for example, you may not contract for anything illegal) and certain broad categories, like contracting for something that looks more like an employment relationship.
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