Friday, November 14, 2014

Letter of Intent ( LoI ) & Memorandum of Understanding (MoU) - Overview & Differences

... LoI - Letter of Intent ...


DEFINITION of 'Letter of Intent - LOI'
1. An agreement that describes in detail a corporation's intention to execute a corporate action. The letter of intent is created by the corporation with its management and legal council, among others, and outlines the details of the action.

2. A document that can be used by parents to outline the thoughts and hopes that they have regarding their children in the event that the parents die. The courts use the information contained in the letter of intent to determine what happens to the children.

1. Letters of intent are used during the merger and acquisitions process to outlines a firm's plan to buy/take over another company. For example, the letter of intent will disclose the specific terms of the transaction (whether it is a cash or stock deal).

2. Unlike wills, letters of intent are often not legal documents. However, because a letter of intent represents the wishes and desires of the parents, the courts will still often use it as a benchmark in conjunction with other documents to determine what happens to the children. 


A letter of intent (LOI or LoI, and sometimes capitalized as Letter of Intent in legal writing, but only when referring to a specific document under discussion) is a document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to a heads of agreement. Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements, Lease Agreements, and overall all Agreements which aim at closing a financially large deal.

LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements, a covenant to negotiate in good faith, or a "stand-still" or "no-shop" provision promising exclusive rights to negotiate. An LOI may sometimes be interpreted by a court of law as binding the parties to it, if it too-closely resembles a formal contract.

A letter of intent may be presented by one party to another party and subsequently negotiated before execution (or signature.) If carefully negotiated, a LOI may serve to protect both parties to a transaction. For example, a seller of a business may incorporate what's known as a 'no solicitation' provision which would prevent the buyer from subsequently hiring an employee of the seller's business should the two parties not be able to close the transaction. On the other hand, a LOI may protect the buyer of a business by imposing a condition to complete the transaction on their part if financing the deal is not obtained.

The most common purposes of an LOI are:
  • To clarify the key points of a complex transaction for the convenience of the parties
  • To declare officially that the parties are currently negotiating, as in a merger or joint venture proposal
  • To provide safeguards in case a deal collapses during negotiation
  • To verify certain issues regarding payments done for someone else e.g. credit card payments
An LOI may also be referred to as a term sheet or discussion sheet. The terms reflect different styles (an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips formalities and lists deal terms in a bullet-point summary), but usually do not indicate any difference under law. A contract, by contrast, is a legal document governed by contract law. Furthermore, there is also a specific difference between a letter of intent and a memorandum of understanding (MOU); an LOI outlines the intent of one party toward another with regard to an agreement, and may only be signed by the party expressing that intent, whereas an MOU must be signed by all parties to be a valid outline of an agreement. Nevertheless, LOIs are fairly often incorrectly referred to as MOUs and vice versa. 

... MoU - Memorandum of Understanding ...


DEFINITION of 'Memorandum of Understanding - MOU'
A legal document outlining the terms and details of an agreement between parties, including each parties requirements and responsibilities. 

INVESTOPEDIA EXPLAINS 'Memorandum of Understanding - MOU'
The MOU is often the first stage in the formation of a formal contract. An MOU is far more formal then a handshake and is given weight in a court of law should one party fail to meet the obligations of the memorandum.


Definition - What does Memorandum of Understanding (MOU) mean?
A memorandum of understanding (MOU) is a document that describes a formal agreement between two parties. It is not a legal agreement, but it does indicate the establishment of a business relationship that will continue and likely result in a legal agreement such as a contract.

This term is also known as a letter of intent (LOI) in the United States.

Techopedia explains Memorandum of Understanding (MOU)
An MOU indicates that a legal contract will be forthcoming. This is more expeditious than other forms of documentation.

An MOU can also be put in place before the formalities of a contract when an agreement between parties has been reached but still requires written documentation.

MOUs can vary and be tailored to each organization’s or party’s needs. An MOU should state or describe:

  • Who the partners are and their contact information 
  • What it is they are going to be working on, the background of the project and why the MOU is being entered into 
  • The scope of the document and who will use what the MOU provides 
  • Specified activities, if already determined 
  • Implementation of activities 
  • Funding issues 
  • Each party's roles and responsibilities 
  • A time line, if desired 
  • Duration of agreement 
  • A signature and date of signature by all of the parties agreeing to the MOU
MOUs can be useful documents to get the ball rolling on major projects and can be used in any type of organization.

#Business Dictionary

A document that expresses mutual accord on an issue between two or more parties.

Memoranda of understanding are generally recognized as binding, even if no legal claim could be based on the rights and obligations laid down in them. To be legally operative, a memorandum of understanding must :

  • (1) identify the contracting parties, 
  • (2) spell out the subject matter of the agreement and its objectives, 
  • (3) summarize the essential terms of the agreement, and 
  • (4) must be signed by the contracting parties.
Notes :  Also called letter of intent.

#Differences By International Contract . Net

It is customary, in day to day business, to start writing negotiations in between parties when conducting any business purpose, whether buying, distribution or partnership agreements. This home for future consummation of binding mutual obligations can not be considered much less a contract itself, denominating legally as mere letters of intent or preliminary treatment.

A distinction has to be made very clearly as far as the effectiveness of such treatment preliminary binding and can advance even now they represent only simple conversations, writing minutes or crossover projects, offers and counteroffers in which the parties do not show their intent to be bound each other, but the only thing is that record to see the possibility of hiring in the future. Letter of Intents and Memorandum of Understanding (known as MOU´s) are drafts without binding efficiency and, at best, serve as mere interpretive elements in the event of needing to know the will of the parties to enforce when the business finally completed.

There are different types of Letters of Intent in international business. The most common are:
  • Letter of Intent for International Sale Contract.
  • Letter of Intent for International Distribution Contract.
  • Letter of Intent for International Joint Venture Contract.
Without a certain formality, the Letter of Intent is ment to acknowledge the will of the parties to carry out in the near future all the steps necessary to perform a contract that gives way to a transaction in international business. It involves a reciprocal wills statement, without binding effect, but with high ethical value to the parties who sign.

Thus, among the purposes of the letters of intent we can include:
  • Clarifying the key points of an operation for the convenience of the parties.
  • The statement that the parties are currently negotiating.
  • Provides guarantees if the deal collapses during negotiation.
Although the terms refer to different documents, the differences are often formal, reflecting different styles of writing or business customs, and not a substantial difference in what Letters of Intent and Memorandum of Understanding pursue.

Depending on which document the number of signatories will differ: In a Memorandum of Understanding, more than two parties may be involved but for a Letter of Intent only two parties are involved. The first one of them imply that all the parties involved have to be signatories, while a letter of intent needs only the party which proposes the agreement to be a signatory.

Both documents define the intent of the parties: both, a Memorandum of Understanding and a Letter of intent describe an intention to take some action. From the business point of view, it is defined as an agreement between two parties before the agreement is finalized.

It is essentially a collection of key points of an agreement between the two parties who pretend to conduct a business transaction, especially when announcing a joint venture, Letters of Intent and Memorandum of Understanding are signed for the purpose of declaring that the various parties involved are negotiating a contract. It is simply the agreement signed prior to the final agreement.

Another characteristic is that both Memorandums of Understanding and Letters of intent can resemble a written contract but usually not binding on the parties in their entirety. However, the majority of these agreements, contain provisions that are binding, such as non-disclosure and non-compete agreements. 


MoU and LoI is commonly used in business and legal world. As a Business Analyst, as a Project Stakeholder, as a Finance Team, and as a Management you should understand how important these are. At the first time, it's quite hard to understand these words. It is all about "agreement" and it looks similar. Then if you read carefully, you can understand that the main difference is only one. The difference is that the LoI is signed by the party expressing that intent, but MoU is signed by all party. When you talk about legal, it is very important that you understand the rules. So be careful when talk about the agreement.

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