Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It's a perfect outlook with a perfect setup for the ups and downs yet to come.

Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the first episode, you already have an idea and context of our buyer's situation.  Listen to the call, as we walk through the important points and considerations when drafting our buyer's letter of intent, that happens to include a no-shop provision.  

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business, this is our second episode of Behind the Buy, our series where we take a look at the transaction of buying a business with our client, you get to listen in on our phone calls. My name is Nasir Pasha.

MATT: And I'm Matt Staub.

NASIR: This is our first real episode, I think our first episode was just kind of an introduction of our series, but this is where we really get to the meat. We're going to play our first phone call. At this stage, we're just setting things up. We're talking about the actual initial transaction of negotiating the business terms through what is called a letter of intent.

MATT: It's just some table setting if you will, the document that starts the whole transaction and discussing the terms that are in there, what should we include, what shouldn't we include. Just prepping our client and getting this whole thing started.

NASIR: Even though I think this is a pretty straightforward part of the transaction, there's a lot of important information here when a buyer's looking to purchase a business, the different options they have on how they make the offer and how they structure it. There is a lot of discussion to be had before things are put in writing. This is a critical step, but this also really sets up everything that's going to be coming, the twists and turns if you will, of this particular transaction.MATT: Exactly.

NASIR: As always, we're going to have a little overview of some of the defined terms or vocabulary. It's not to say that -- most of you probably know this information, but in the phone call itself, we may not take a moment to define them during the call because of course, it's a natural conversation, so let's go over a few words in here so that everyone's prepped for this listen. The first are a set of three. There's the term sheet, the letter of intent and memorandum of understanding. From a client's perspective, often, they use these different three terms interchangeably. In a way, they could be very interchangeable in the sense that from a legal perspective, a term sheet and letter of intent and a memorandum, they all can have the same legal effect if they're drafted in such a way. The best way to distinguish each of them is usually just from a formatting perspective. I know that sounds oversimplified, but I would say that a term sheet is probably the most informal of the three and the Memorandum of Understanding is the most formal, but all three are some written document and they all include the basic terms of the business transaction. However, a term sheet is very rarely an enforceable document. Sometimes it can be very casual, a letter of intent is pretty much always an unenforceable document. However, it may have enforceable provisions and a memorandum of understanding is almost always an enforceable document, but may have some non-binding provisions in it. Really, the distinction between the three is in the details because for example, a term sheet for which you outline the terms of buying a business that is signed by both parties could end up being unintentionally a binding document and similarly with the letter of intent and an MOU. That's why even if you want to casually offer something in a term sheet, even in an email exchange, you really should get an attorney involved very early to make sure you don't accidentally walk into an enforceable transaction t...