After locating a suitable practice, sellers usually offer some documents in exchange for a non-disclosure agreement. Some sellers, however, would rather receive a letter of intent (“LOI”) before offering any documents. So soon after locating your desired practice you should be ready to send a letter of intent.
A properly drafted letter of intent should include binding and non-binding provisions. The non-binding provisions of the letter of intent should be drafted so that your initial offer will not bind you into purchasing the practice without first having the appropriate documents that will allow you to learn more about the practice such as the practice’s gross revenues, business expenses such as rent, payroll, existing contracts, debts, liens, and other obligations and liabilities.
The binding parts of the letter of intent should be drafted so that the seller will not continue to shop and sell the practice to another potential buyer while you are negotiating a deal with the seller and conducting your due diligence. You do not want to be in a position where you are incurring costs to acquire the practice only to find out that the seller has decided to accept another offer from another buyer. You also want to make sure that there are no major changes in how the practice will be managed during the pendency of your contract. Once a fully executed LOI is in hand, your due diligence starts, at least partially to the extent that you have received documents from the seller. Unfortunately, many attorneys do not have the binding provisions in their letters of intent or capitulate and are willing to remove it at seller’s request. In my opinion, if you are going to invest on legal and other fees, not to mention your valuable time, you should insist that these binding provisions are included in the letter of intent.
A. Shane Kamkari, Esq. ask@DentalMedicalAttorney.com; 301-309-9002
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