Hidden Dangers in Letters of Intent

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Dealmakers commonly use letters of intent, term sheets or memorandums of understanding (better known as “LOIs”) early in a potential transaction to outline the general business terms of a proposed deal. LOIs can save time and money by enabling the parties to agree on important business issues before drafting the detailed transaction documentation. Because the details of the deal have not been hammered out at this stage, the parties involved probably do not intend for the LOI to be binding (other than perhaps certain limited provisions of the LOI, such as confidentiality and exclusivity).

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