Letter of Intent: How to Draft and Manage LOIs

When two parties get involved in a legally binding agreement, a letter of intent is usually required before finalizing the contract. Even though a letter of intent is not binding, it indicates a serious commitment that requires fulfillment.

But though these letters are key to building business relationships and effectively documenting agreements, they can be a challenge to track and manage. Companies often execute multiple agreements simultaneously, which can make accurate and efficient documentation of these letters difficult and time-consuming.

With the right digital tools and contract lifecycle management systems, however, you can streamline the creation and organization of your company’s letters of intent.

A letter of intent (LOI ) is a document drawn up when two parties come to a mutual agreement, but haven’t worked out all the details yet. This letter is presented before the finalized legal agreement, which means that a letter of intent is not legally binding. However, it does indicate a commitment between two parties and the terms they intend to follow.

For example, when one company plans to make another their exclusive provider of certain goods or services, they might put it down in a letter of intent ahead of formal contract negotiations. By drafting a letter of intent, both companies agree to plan for an impending partnership. This means that the first company can stop searching for potential providers, and the second company can confidently begin making arrangements for shipment or installation.

A letter of intent can be written for a variety of purposes, including:

• Identifying the terms and conditions of an agreement between two parties.
• ‌‌Identifying which aspects are negotiable and non-negotiable.
• ‌‌Giving protection to both parties before reaching a legal agreement.
• ‌‌Expanding a pool of eligible applicants for jobs within a company.
• ‌Indicating clear-cut deadlines for transactions.
• ‌‌Reducing the chances of wasted time and money.

A letter of intent covers all the pre-terms of a binding agreement between two parties. Therefore, the parties involved opt for a letter of intent when they do not want to enter into a legally binding agreement just yet.

Start your letter of intent with a salutation. When possible, it’s preferable to address the person by their full name, rather than with a generic opening, like “To whom it may concern.”

Introduce yourself in the first paragraph briefly and state your reasons for writing the letter. Then, state what you have to offer. This includes skills, terms, and conditions. Next, include a call to action and explain what you expect from the opposing party.‌ Lastly, close the letter with an overview of your letter and end it respectfully.

Parts of a letter of intent

Every letter of intent is different, but most can be broken down into a few key components. When in doubt, start with these main elements and built out from there:

• Summary: A summary of your letter that gives an overview of the entire body of text. This is known as the opening paragraph. ‌Use this space to state the reason for your letter of intent in a concise manner.
• ‌Agreement details: Identify the details of the project or transaction and express clearly what you hope to achieve upon fulfilling the agreement.
• ‌‌Company information: Elaborate upon your credentials to demonstrate why your company is the best choice for a particular project.
• ‌‌Budget: Offer the budget that you plan to spend on the project.
• ‌‌Conclusion: Add any remaining information in a closing paragraph followed by a signature of an appropriate person.

Limitations of a letter of intent

Letters of intent are not legally binding, and don’t extend full legal protection to contractual parties. However, if not stated clearly, they can become legally binding, might not always be desirable—especially if the agreement is still pending approval by both parties.

It’s also possible to fall into the trap of relying too heavily on a letter of intent, without ever finalizing a legally binding contract. This can open up both parties to legal liability in the event the agreement goes wrong.

‌Since a company handles many documents at one time, it is not always easy to keep them updated.‌ Due to a lack of transparency in most letter-drafting processes, it can be tough to ensure that an agreement hits all required levels of oversight. Sometimes teams miss new additions, or the document skips necessary approval steps, forcing you to start the process over again. 

What’s more, manual documenting means spending extra money on paperwork, and extra time searching for and organizing documents once they’re complete. Since they are stored across various platforms like Google and Microsoft Office, accessing them on the spot can be challenging.

If an LOI is written incorrectly or misplaced, it can delay the process of executing legal agreements.‌ Since the whole process is isolated, this will also create problems during cross-verification. ‌Both parties may use different software to document their data which reduces the overall efficiency of the system.

It’s easy to think of common bottlenecks like these as simply inevitable parts of the legal process—but they don’t have to be. With automation and other digital contracting tools, managing letters of intent can be made simpler and more effective.

Automating workflows for letters of intent

With automated workflows, pre-agreement conditions can be drawn up easily and teams can sort, store, and keep track of completed documents from a single, central system, eliminating the need to invest excess time and energy to paperwork and filing.‌

Templatable workflows help simplify the process, as they prevent human errors and ensure accuracy.‌ Without the need for knowledge of coding or complex technical systems, anyone from the company can easily access necessary information.‌ Automation allows for better collaboration and clearer negotiation between parties, allowing ‌everyone to stay up to date with new additions to the documents.

Letters of intent are an important aspect of doing business. Companies often need to redraft these documents during negotiations, which means frequent editing and updates. Doing all this manually for multiple teams can quickly become cumbersome. 

Digitizing the contract drafting process will solve many of these problems. Automation and digitization on a single platform allow ease of access, storage, and updates, while templating helps eliminate mistakes and missing information.

Ironclad offers a full array of digital contracting tools that give users a single source of truth to draft, track, and fulfill letters of intent. With these tools, you can generate unique letters of intent for any business situation from scratch.

Ironclad Editor

The user-friendly interface of Ironclad Editor makes it easy for any department to use, allowing for both independence and collaboration.‌ It’s also compatible with common digital tools and e-signature software, so your existing workflows can feed neatly into the new system.

The editing platform also makes changes trackable, so you can reduce error and allow for better communication across teams, as well as more straightforward negotiations with business partners. Ironclad’s Editor allows for in-browser editing while being fully compatible with Microsoft Word, so all parties can edit and redline using whatever tools they prefer.‌

Workflow Designer‌

Ironclad lets users design and replicate contract workflows for future use—an essential tool for saving time and effort when drafting letters of intent. The interface is straightforward to use and allows you to draft your letters of intent within minutes. You can upload an existing letter to get your workflow started or choose from a built-in template.

The Workflow Designer provides a centralized point for all teams to participate. Getting signatures and approvals has never been easier. It aids in mitigating all possible risks and minimizes losses on a large scale within the company. Modifying the templates is a simple task. It allows companies to adjust them as they please and whatever they know is acceptable for the opposite party.

It’s about time legal work got automated. Digital contract management is the perfect choice for letters of intent, because it gives you the chance to make better deals and negotiations. It improves communication amongst teams as well, and everyone gets a chance to participate. Implementation doesn’t require much technical expertise either, so you can quickly get started writing letters of intent on your own.

With all document data stored in one place, it’s possible to search through all your company’s letters of intent, and quickly verify details of current and previous agreements. It’s adaptable to any type of legal document too. That means you can apply the same system across departments, easing bottlenecks across your company and helping everyone stay on top of deadlines and expectations.

To see if Ironclad can help improve your contracting system, request a trial today.