A letter of intent - what is it and why is it worth having it?

Before formalizing cooperation, future contractors often decide to sign a document in which they summarize the agreed purpose and further planned steps. This document is the letter of intent.

What is its role and what is the advantage of signing a letter of intent?

I have prepared 6 reasons why you can decide to take this kind of step. Read below.

The concept of a letter of intent is a known practice of business transactions, both in the domestic and international dimension. This concept has not been regulated in the Polish legal system. The practice of drawing up letters of intent can be seen in particular as part of negotiations regarding broadly understood economic cooperation, concluding investment agreements, mergers or acquisitions of enterprises.

The legal nature of the letter of intent and the effects of its preparation raise a number of justified doubts. Among representatives of legal science, the dominant view is that a letter of intent does not create any obligation to conclude a contract, but only expresses the will of the parties to conclude such a contract in the future.

Considering that the law does not regulate the very concept of a letter of intent, there are also no legal grounds indicating the form of such a letter. The letter of intent may therefore be drawn up in any form. Due to the purpose of signing such a letter, it is worth making sure that it is made in writing or in another form allowing the reconstruction of the parties’ arrangements.

1. The letter of intent allows you to start a meaningful conversation about possible future economic cooperation, the conditions and the considered dates of its formalization.

Therefore, we have a starting point and we know what we will talk about while specifying the terms of cooperation. We set the priorities and the most important points for each party.

2. Drawing up a letter of intent allows to limit the number of contractors with whom the entrepreneur wants to cooperate in the long term.

At the same time, signing this type of document is a kind of signal confirming that it is this entity that the entrepreneur is strongly considering formalizing further cooperation.

3. After drawing up the letter of intent, the parties have the opportunity to conduct further negotiations and, if necessary, verify their expectations regarding future economic cooperation.

In a relatively informal atmosphere, you can therefore find out whether the parties are willing to cooperate.

4. Drawing up a letter of intent allows to build business relation even before concluding specific contracts.

And the importance of business relations cannot be overestimated.

5. A letter of intent serves to create a commitment between the parties involved in the preliminary planning stages of conducting and developing future business activities.

Signing this type of document may help in making certain economic decisions that the entrepreneur is considering as a part of the adopted development strategy.

6. Signing the letter of intent does not create an obligatory relation between the parties, and therefore in case of the impossibility of establishing cooperation with the contractor in the future, there is no basis for incurring liability.

Exceptions in this regard may result from specific factual circumstances and what will be indicated in the content of the letter of intent. The phase of the negotiations conducted by the parties is also important.

Finally, signing a letter of intent can bring many benefits for business activities, without high risk associated with signing it.

Joanna Lubecka
attorney