Which provisions in a Letter of Intent are legally binding?
Typically, only specific provisions are binding including confidentiality obligations, exclusivity and no-shop commitments, allocation of transaction costs, and governing law provisions. All business terms like purchase price, asset descriptions, and closing conditions are non-binding expressions of intent until a definitive purchase agreement is executed. CaseMark clearly delineates these distinctions in the generated LOI to prevent misunderstandings.
How long should the exclusivity period be in an asset purchase LOI?
The exclusivity period typically ranges from 30 to 90 days depending on transaction complexity and due diligence scope. The period should be long enough for the buyer to complete investigation and negotiate definitive agreements, but not so long that it unreasonably restricts the seller if negotiations fail. CaseMark helps you calibrate the exclusivity duration based on your specific transaction timeline and due diligence requirements.
What's the difference between assumed and excluded liabilities in an asset purchase?
In asset purchases, the buyer typically acquires only specified assets and assumes only explicitly identified liabilities, leaving all other obligations with the seller. Assumed liabilities might include obligations under assigned contracts or specific identified debts, while excluded liabilities typically include accounts payable, tax obligations, litigation, and employee liabilities existing before closing. This structure is a key advantage of asset purchases over stock acquisitions and must be clearly articulated in the LOI.
How should purchase price be allocated among asset categories for tax purposes?
IRC Section 1060 requires purchase price allocation across seven asset classes, from cash and deposits to goodwill and going concern value. Buyers generally prefer allocating more to depreciable assets, while sellers may have different preferences based on their tax situation. The LOI should acknowledge that parties will negotiate a compliant allocation and report consistently on IRS Form 8594, with final allocation typically determined during definitive agreement negotiations after complete asset valuations are available.
What due diligence access should be granted in an asset purchase transaction?
The seller should provide reasonable access to business premises, all books and records, contracts, financial statements, employee information, customer and supplier data, and intellectual property documentation. Access should be structured to avoid business disruption, with site visits scheduled in advance and sensitive customer contacts limited until later stages. CaseMark generates due diligence provisions that balance the buyer's need for comprehensive investigation with the seller's need to protect confidentiality and maintain normal operations.