Term Sheets and Letters of Intent

What is the difference between a Term Sheet and a Letter of Intent?

Well, not much. A term sheet is typically used for negotiations with a venture capitalist and an entrepreneur. It is essentially used as a basis of negotiations and once the deal comes to closing the terms of the deal will be very similar to the terms listed on the terms sheet. A letter of intent is typically used as a document for negotiations in a merger or acquisition. Once the negotiations are complete then due diligence will begin. Unless if the buyer reveals that the company is less profitable than it was initially lead to believe, or if the it finds something that could be detrimental as a going concern of the company, the terms will remain in place. If something is found then the companies may reenter the negotiation prior to closing the deal. Or, if that something is a major issue, the buyer may walk away from the deal completely.

Is the Terms Sheet or Letter of Intent Legally Binding?

No, the terms sheet is not legally binding. Remember the last time you bought a car? If you bought it from a dealer you probably started negotiating with someone who got the price to a reasonable point, then he or she had you sign your initials on a piece of paper next to the price you were willing to pay and went to discuss it with someone else. This is kind of like that. While nether document is legally binding it is a point of negotiation, and if both parties involved are ethical and stick to their ward the deal will be completed close to those agreements—again, unless due diligence reveals misleading information.

Should you Negotiate the Sale of Your Own Business?

Just like what is done with the car dealer who negotiates with you then takes the agreement back to the person in the office, it is very helpful to have an intermediary who can do the negotiations with the buyer on your behalf. This helps to keep emotions from getting in the way and keep the deal and negotiation moving forward. Deal Capital Professionals are extremely well equipped for helping you sale your business in the Olympia, WA area.

Troy Jenkins
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