Letters of Intent: A Tool for the Savvy Healthcare Practice
What is a letter of intent, and when is it wise to employ one? Find out how these documents can help prevent hiccups in your most important transactions.
What is a letter of intent?
A letter of intent (LOI) is an agreement that outlines the basics of a proposed deal between two parties. Generally non-binding, they are often used in the context of employment or purchase agreements and can vary widely depending on the type of transaction at hand. Typically, a letter of intent also designates what information must be shared or what determinations the parties must make in the future to establish a binding agreement.
The Benefits of Using a Letter of Intent
A letter of intent may be beneficial for those making an employment offer to an individual or those buying, selling, or merging a healthcare practice. It is a useful tool for helping both parties in a transaction establish that they’re on the same page about a deal’s broader points, such as the payment price or the timeline. Using an LOI can help ensure that no surprises come up for either party by the time a deal is formalized. An LOI can also explain what might happen to the parties if the agreement does not work out.
Parts of a Letter of Intent
A letter of intent often begins by explaining who the parties are and where they are located. This introductory section then typically describes the proposed transaction and how the end result might look.
Next, the LOI addresses several non-binding aspects of the agreement, such as:
- payment information, like salary or purchase price, depending on the transaction
- employee benefits
- important dates, such as the start date for an employee or the closing date for a purchase
- any contingencies that need to happen before an agreement can take place, such as the ability to obtain third-party approval or financing
- the timeline for the rest of the negotiation process, which may include what must be completed, and by when.
Depending on the type of transaction at hand, the LOI might also include some binding provisions. When buying or selling a practice, these binding provisions are likely more extensive since confidential information about the practice’s finances, policies, or clients may be disclosed during negotiations.
Any binding provisions should be noted as such in the LOI. Generally, these might include:
- Confidentiality and nondisclosure agreements, which outline the ways that confidential information released during negotiations may be treated and used,
- Non-compete and non-solicitation agreements, which prevent one party from using information gained from the other party to set up a competing business or poach employees
- Exclusivity provisions, which prevent negotiations with competing third parties for specific lengths of time
- Due diligence clauses, which make sure each party is acting in good faith during negotiations, and
- An explanation of available remedies, which details what sort of relief might be applied if a party breaches one of these binding provisions
What Are the Legal Consequences of Having an LOI?
A good letter of intent will specify precisely which, if any, provisions become binding once signed by the parties. Strong language to this effect is ideal. If negotiations sour and the LOI is brought to court, clear and unambiguous language can help courts figure out precisely which parts of the letter to enforce.
A letter of intent can be a smart tool to use when negotiating a proposed agreement. An experienced attorney can help craft a letter of intent that provides clarity to the deal and protects your interests during the transaction process.
The attorneys of Jackson LLP work with healthcare professionals on a wide range of transactions, including employment, practice ownership, insurance, and real estate. To learn how we can support your business or practice, schedule a consultation with us.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.