What should be included in a LOI for a partnership agreement?
We are considering a partnership agreement. What should be included in our LOI? We don't want to miss any marketing touch points, or put any constraints on the partnership.
An LOI (letter of intent) and partnership agreement are two different documents, both important. The LOI is an initial agreement between two parties that intend to do business together. A letter of intent isn't necessarily legally binding. Any terms or details outlined in the letter of intent can be modified later in the partnership agreement. A partnership agreement is legally binding and needs to be specific and detail-oriented to the roles and responsibilities of each partner. The Business.com recently published a guide on How to Create a Partnership Agreement that may be helpful to you. As others have suggested, it is advised that you hire a legal consultant to draft a partnership agreement to ensure you don't leave anything out. The guide above will help you begin to think about what details/scenarios to include.
Do you currently have legal counsel? If not you should get one. Especially one, who is up on startups, internet technology and intelliectual property writes. My attorney, Julian Chan, out of Los Angeles area is fluent in these areas. I am sure there are equivalent talent in the Boston area. But do not sweeze a penny and drop a dime later in time, with a poorly written LOI agreement. Also you need to have a Medical Advisor on your staff, either as an advisor or board member. I created an App for cross-eye challenges. Difficult to navigate medial community without a medical partner. Second thing; you need to review the FDA document regarding APPs targeting medical. Reason, you need to know if you need to go through an FDA approval process or not.
*Purpose of the entity
*Responsibilities and tasks for each party
*Who pays for what...when
*How much each party "owns" of the entity once they have completed their responsibilities
*What do you do if one party or the other fails to perform
*What do you do if one party or the other misbehaves badly
*How long does the agreement cover
*What are the steps to dissolve the relationship
I'm not a attorney, nor have I had any legal education. So I cannot give you advice.
This said, I can share some of my experiences so you might get a better idea of what is in front of you. I know it can be a hassle if you do this for the first time.
For me a LOI always has been a different document then any agreement or contract.
During the period of exploration of the possible cooperation a LOI can be written down and signed by one or both parties. The LOI for me has the function of a handshake.
For as far as I know, a LOI is a gentlemen agreement that has been written down. It doesn't have the same legal status as a contract or formal agreement like the partnership agreement. Still it holds legal value in case you go to court. This is mainly meant for the situation in which one (A) has spend a lot of resources (like money or time) and the other party (B) just withdraws. Then A can sue B to mitigate the costs (and in some cases even lost profit). But an attorney can explain this a lot better. I'm just sharing what I have been told, so you have some pointers to discuss with your attorney
The LOIs I have used in the past, always fitted on 1 page, sometimes even just 10 lines of text. It described the intention we had of doing business, for the products/services, the targets (items or turnover) and the timeline (once, repeating business, for 5 years, etc). It also can hold the nature of the intended legal form: (agent, joint venture, distributor, etc). That is the content of the LOIs I have worked with.
So in the LOI we have put the highlights of our intended cooperation. In the final contract (like a partnership agreement) we wrote down the level of detail we wanted to.
And some last pointers for the final agreement: we never suffocated each other with the contract, the cooperations are be based on mutual trust and the contract just helps to clear things up. We plan for the storm when the sun is still shining, meaning now our relationship is good, we also write down how we will handle things if we don't like each other anymore (so how to exit). And I always get advice from an attorney instead of this forum when it comes to formal legal documents :)
So a lot of what Costanzo said and others too.
AS many answered...A document is only as good as the trust it accompanies...Try to think of everything, but remember trust is most important and if the principals decide to go their different ways, then the relationship must work equally well here as well,
I convey with the other participants, especially if the way-out clause is also coupled with a discharge of responsibility for loss or damage arising from the withdrawal from the agreement.Advice from professional lawyers or contract managers shall be seeked, but with clear requirements in mind for the partnership: you must know what you want to get out of it.
However, the letter of intent is a declaration of interest to partner, generally detailed terms and conditions are included in the partnership agreement following it. As a general rule, I was used to put in letter of intent for partnerships - or Memorandum of Understanding as I was used to call them - the most significant conditions for the partnership, e.g.:
- joint venture or consortium
- joint and several liability or vertical split of liabilities
- governance on decisions
- place of arbitration (generally international chambers of commerce, if international partnership)
- way out clause
In order to anticipate lengthy discussions at the time when the efforts shall be concentrated in delivering.
I hope that this helps.
What you're really afraid of doing is rewriting the "Constitution of America" and getting it wrong. The engraving on the Lincoln Memorial says enough and implies far more - in one sentence. It even sounds quite legal :-)
"In this temple as in the hearts of the people for whom he saved the union the memory of Abraham Lincoln is enshrined forever."
As I understand Partnership Agreement and LOI are 2 different things. Letter of Intent is an information letter which informs about a firms decision to do business/or award an contract to your company. Then follow and Agreement with terms and condition on mutual agreement for business relationship based on your proposal submitted. In this case a legal opinion might not require but depends based on the nature of business and the country you operate.
A partnership Agreement is formed by 2 or more people joining together to do business together based on their investment and involvement in the company. He legal expert are required to protect interest and right of partners.
I have to agree with everyone else. The most important thing to have in the agreement is an exit plan for both partners. Get a good lawyer that specializes in business issues. The cold hard reality is that partnerships have the highest failure rate of any form of business and the lowest rate of success. I was going to say I would never, ever, ever start a business as a partnership but in all honesty I did do that one time. It really didn't work out well at all and I knew better than to make that mistake.
If the partners have totally different specialties and a well defined areas of responsibility then there is a bit of a chance it will work out.
As Mr. Brown said, think pre-nuptial agreement. You ade proceeding anticipating everything will work out well. But, you are ensuring an equitable way of backing out should they not. And, as Mr. Wise said, get your lawyer involved early - not to decide on intent - but to ensure your are equitably protected. The keyword is "equitably" - do nit allow your lawyer to insert draconian terms to protect only your interests