Letter of Intent to Purchase Stock

by Daniel Gruttadaro ; Updated July 27, 2017
...

A letter of intent to purchase stock is created by the management of one business entity which expresses serious interest in purchasing the stock of another company. It is created during the preliminary stages of a stock purchase and sets terms to be finalized later in the process.

Types of Stock

Stocks can be held both privately and publicly, and sometimes a single investor will hold a large share of stock. There are different classes of stock, including preferred stock and common stock.

Legal Effect

While a letter of intent is not a completely legal binding contract, some of its provisions can be binding. It is created with legal counsel to ensure the parties’ interests are accurately expressed.

No Shop Provision

A common item included in a letter of intent is a no shop provision in which a selling company agrees not to look for other buyers while the deal is under consideration.

Considerations

There are many boilerplate letter of intent forms online; but if a valuable business is being bought or sold, it may be worthwhile to hire a lawyer.

Controversy

Some lawyers dislike letters of intent because it is unclear to what extent they can be enforced, and thus some consider them useless.

About the Author

Daniel Gruttadaro began writing professionally in 2009. His work appears on Web sites including eHow and Answerbag. Gruttadaro is a licensed attorney in New York. He holds a Juris Doctor from the State University of New York at Buffalo School of Law.

Photo Credits

  • deal is done image by Alexey Klementiev from Fotolia.com