What is the difference between Letters of Intent and Signed Contracts and why would I bother with Letters of Intent when I could just get signed offers?
What is the difference between Letters of Intent and Signed Contracts and why would I bother with Letters of Intent when I could just get signed offers?
Letters of intent are statements written by individuals or organizations declaring their intention to commit to something, in this case, to use or purchase a product or service. The LOI communicates the writer’s intention to take action, whereas a contract is a signed agreement, indicating the signor’s definite commitment to take action. A letter of intent is not binding, while a contract is. It may be expedient in some start-up cases, to obtain letters of intent, where neither party can commit to a deal until the business has been started. For example, participants of the Self Employment Benefits (SEB) Program in Canada are prohibited from signing contracts until they have been approved to receive the SEB grant; and yet they must prove their business case and validate their customers to the greatest extent possible in order to get the SEB approval. This places the SEB applicants in a bit of a catch 22. They can’t start the business until they prove their business case, can’t prove the business case until they’ve start the business; the letter of intent help to validate sales enough to make the difference in certain cases.
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