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What to look out for when executing a letter of intent.
Physician business owners often approach me, confused why they need an LOI. The short answer is commercial transactions between businesses are complex. While all parties prefer a long and detailed contract, these agreements take an enormous amount of time to draft. Often parties want to get their ideas down on paper. Here is where an LOI, or letter of intent, comes in. An LOI is a document created between two parties who want to spell out the essential terms of their deal in writing. This “term sheet” outlines the agreement between the parties in a brief document.
When is an LOI used
Remember, even when you have an executed agreement, an LOI can still be enforceable
In Kelly v. Rio Grande Computerland Group, parties entered a “Letter of Intent” providing favorable employment terms for the largest shareholder to serve as President after merging of two companies. However, the purchase agreement omitted these and several other provisions. When the largest shareholder was not kept as the President or even as an employee, he sued the purchaser for breaching the “agreement” contained in the LOI and won thousands in damages from lost wages.
Therefore, although an LOI can appear to be a simple document, it makes sense to hire an attorney to review the document to avoid unnecessary legal traps.
Doris Dike is the managing partner at Dike Law Group. Mrs. Dike offers legal advice to healthcare businesses and healthcare providers in the state of Texas and nationwide. She frequently provides healthcare businesses with transactional advice, LOIs, acquiring new businesses, MSOs, employment agreements, compliance guidance and a host of other issues relating to healthcare business law. Mrs. Dike has worked for various healthcare providers including doctors, physician practice groups, and is currently serving as Chief Legal Officer for a rural hospital system in North Carolina.