July 29th, 2019

Legal Talk 26: How detailed should I make the Letter of Intent?

You call again as soon as I send you the template for the Letter of Intent. 

The question you have is how detailed should it be? You could just make it a few lines and on the other hand you could make it about 10 pages long. How long should it actually be? 

Well, here is another dilemma.

On the one hand you could make it really nice and non-confrontational by just putting down 2 or 3 points of principle and hope to get these signed off because there is nothing contentious mentioned. This could get signed off but then things could become more contentious when the main contract based on the Letter of Intent is drafted. This is because a lot of the gaps that the Letter of Intent did not cover have to be filled in the main contract and so negotiations can stall because the Letter of Intent was not detailed enough. This could mean that deal breakers come to light, mid-way through the negotiation of the main contract that is based on the Letter of Intent. 

On the other hand, you could make the Letter of Intent really detailed but then negotiations may stall on this because it is so detailed it is not much different from what the follow up formal contract will look like. In other words, it is no longer a letter of intent but looks like the formal contract itself. 

“So, what should I do?” You ask. 

Okay, there is a question of judgement here but key things that you might mention in the letter of intent include: 

1. Description of services to be provided; 
2. Price and payment terms;
3. Timetable for delivery;
4. Any special terms that are specific to this deal (e.g. any exclusivity or any specific territories where the services can and cannot be used by the customer etc.);
5. Caps on your liability in the contract (normally you would try to cap your liability to simply returning the contract price to the customer); and
6. Binding terms such as confidentiality, choice of jurisdiction and lock in periods, i.e. you both agree not to talk to anyone else about this deal for a certain period of time to allow you to do a deal, etc.

If you can get these points agreed then at least you know that you are on the way to getting a full contract agreed based on the points of principle above because the points above are normally the stumbling blocks. 

“Fantastic”, you say. “I think I get it.” You say you will work hard on getting these points of principle agreed in a Letter of Intent with the big corporate. If you want some further info, here's a good guide on how to write Letters of Intent, I found it very informative: https://www.wikihow.com/Write-a-Letter-of-Intent.

Hope things go well with the big corporate. I await good news.
 
As always, thinking about how I can help you on your start-up journey from zero to IPO.

Best wishes


Jimmy Desai
Your Legal Coach

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