Before formalising an investment through the corresponding agreement, and of course prior to the due diligence to be carried out by the investor, it is usual and highly recommended that the parties sign a document to set out their intentions which, depending on its scope and form, is structured through a letter of intent (LOI), a memorandum of understanding (MoU) or a term sheet, which are referred to in English due to the influence of Anglo-Saxon law. It is a pre-contractual document that sets out the preliminary terms of a potential transaction before the signing of a formal and binding agreement.
This document is characterised by the following points:
- It is a straightforward text that avoids the fine details of investment agreements.
- In it, the parties set out their intention to negotiate the investor's entry into the company's capital.
- A negotiation framework is established regarding the main aspects of the transaction (company valuation method, process and duration of the due diligence, possible guarantees, general structure, etc.).
- Although its content is generally not usually binding, mandatory clauses such as confidentiality are included, which is highly relevant since during the negotiation process the parties (above all, the target company) will exchange sensitive information or, where applicable, the protection of industrial and intellectual property or the goodwill of the target.
- Other clauses that are usually included and are of a mandatory nature may be the exclusivity period (whether in favour of the company, in favour of the investor or with respect to both), the distribution of applicable expenses, the competent jurisdiction and the applicable law.
Ultimately, the letter of intent sets out the most relevant points of the transaction, anticipating issues that might be contentious in the future and establishing the general framework within which the parties will negotiate in good faith.
Although being brief documents they might seem unimportant, nothing could be further from the truth: once the term sheet has been signed, it will serve as a guide for drafting future contracts, such as the investment agreement or, where applicable, the shareholders' agreement.
En BUSQUETS we are experts in advising on these types of transactions, for both investors and companies seeking external financing, so if you have any questions or would like us to accompany you through the process, please do not hesitate to contact us at info@busquets.legal or calling the 934 160 004.
We would be delighted to help you.