A business proposal letter of intent is a professional financial document with which the writer makes an offer to invest with principal members in a business. Letters of intent help outline an agreement to move forward in a business transaction in good faith. A business proposal letter of intent, or letter to invest, expresses a preliminary agreement between the principal members of a business and a potential investor.
This article discusses why you should write a business proposal letter of intent. We also provide a format to help you write your letter of intent.
Why Write a Business Proposal Letter of Intent?
A business proposal letter of intent facilitates the ongoing discussion between those who control the business and the potential investor(s). Some of the benefits of this letter are below.
- It includes an expression of the intention of all the parties to negotiate in good faith.
- It establishes preconditions that must be addressed, such as financing and investment conditions.
- It gives potential investors access to business information that might influence their decision to invest.
- It protects the company and the principal members with a confidentiality statement.
- It outlines the critical aspects of the investment, such as investment amount and number of shares or percentage of ownership the investors will gain.
- It facilitates the creation of a formal business investment agreement at a later time.
Warning! Be sure to state whether the terms of the letter are binding or non-binding. This statement is a critical part of your letter because it protects all the parties from misunderstandings and potential lawsuits about the legal enforceability of the letter’s terms.
Business Proposal (Investment) Letter of Intent – Format
{your legal name}
{your address}
Effective Date: {date on which you write the letter}
{investee name – name of business}
{investee address}
RE: {Create a clear and concise subject line, such as “Letter of Intent to Invest” or “Intent to Invest into a Business Proposal.”}
This investment letter of intent contains basic terms of an agreement that shall be considered {(binding) or (non-binding)}. The parties may decide to enter into a formal agreement at a later time.
Investor: {your legal name}
The Investment: {business type}
Investment Amount: {the total amount you will pay to the principal members on or by the closing date. For example, $50,000.}
The Principal Members: {the full legal names of the principal members} are the primary owners or shareholders of the business.
The Transaction: The investor plans to make an agreement with the principal members in the amount of {spelled-out amout} ({numerical amount}) in return for {percentage} of the business. The currency is the American dollar.
Structure: All parties agree to work diligently in good faith toward a formal agreement or closing that:
• Complies with federal, state, city, and local legal requirements,
• Prevents adverse tax problems, and
• Is cost-effective.
Financing: This letter of intent {(is) or (is not) conditional on the investor’s ability to finance the investment amount. {If this letter of intent is dependent on the investor’s ability to finance any portion of the investment amount, the investor must present proof of funds no later than {date}.}
Access to Information: Upon the execution of this investment letter of intent, the investor and their advisors will have complete access to all information concerning the investment. The investor agrees to sustain a fiduciary duty to keep this information confidential. They agree not to share the information with any third party without the written consent of the principal members.
Return of Materials: If the parties cannot create a formal investor agreement, the investor shall return all materials obtained from the principal members.
Investment Conditions: The investor agrees to review the provided materials and invest in a formal agreement within {number} days, subject to their satisfaction and approval.
Additional conditions of the investment include:
• The investor and their advisors are satisfied that they have had a reasonable opportunity to perform due diligence.
• The investor has been able to discuss this matter with necessary third parties.
Closing: The closing of the transaction will occur on {date}. The principal members will exchange the investment amount for the investment.
Closing Costs: The closing costs will be paid by {person(s) responsible for paying these costs}.
Confidentiality: The negotiations will be confidential between the principal members and the investor. The investor will communicate only with their advisors, the principal members, and necessary third parties. No press release will be made unless required by law or with the mutual consent of all parties.
Exclusive Opportunity: The parties involved agree not to enter into negotiations or discussions with any other party unless agreements are already in place.
Standstill Agreement: The principal members agree not to sell part or all of the business between the execution of this letter and the closing.
Governing Law: The terms in this letter are governed by the law of the state of {your state}.
Counterpart and Electric Means: This letter may be written and executed in several counterparts, all of which will be considered original, and which make up the entire document. Any of the counterparts may be sent by electronic means.
Severability: If any section of this letter is deemed invalid, no other sections will be affected.
Acceptance: If you agree to the terms of this letter, please sign and return a copy of this letter by {date}.
{your signature and date}
{your printed name}
{principal member signature}
{principal member printed name}
Business Proposal Letter of Intent (Word Template)
Conclusion
A business proposal (investment) letter of intent contains all the information you need to begin working toward a formal investment agreement. Once you and the principal members have signed this letter, you can obtain information about the business you want to invest in. Feel free to use the format we have provided to write your letter of intent to invest.
