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Legal advice on Drafting a Letter of Intent in Portugal

Ensure that your new venture has the right protections

Our corporate lawyers will guide you through the process step-by-step.

Creating a Letter of Intent or Memorandum of Understanding is the beginning of an exciting chapter in your business or venture. 

It’s a document that defines the terms under which one firm will operate with another, but which also serves as a business plan. It can also be referred to as a Term Sheet. 

A memorandum of understanding outlines the terms agreed upon between two partners before a firm is established and provides instructions on how to establish the firm in the future, from drafting the company’s articles of association to new partner registration.

How can a lawyer help me?

A Memorandum of Understanding cannot be considered the constitutive act of a start-up, but it does bring rights and obligations for the parties that sign it. These are binding terms. For this reason, it is important to be very careful when drafting your memorandum of understanding.

A Letter of Intent is usually a statement of the transaction’s main terms. Working with a lawyer at this stage will ensure that your transaction has a strong foundation, saves you time and money, and is poised for success. 

At Lexidy LegalTech Boutique, our lawyers will guide you through the preparation of the Letter of Intent. They will also provide all the necessary legal support at each of the stages of the transaction.

¨We will be with you each step of the journey.¨

 

Why do I need a Memorandum of Understanding?

It’s crucial for a business to establish an agreement before doing business in an international setting. It’s also critical for the agreement to be legally binding and documented. 

Before signing a sales and purchase agreement, you must complete the due diligence process with a letter of intent. To ensure that the client’s best interests are protected, an experienced lawyer will use the Due Diligence process to explore and uncover any potential issues with the transaction. 

It is very common, especially in start-ups, that have friends or family as their first partners, to think first about developing the idea or product and only then, when the business starts to take off, to think about formalizing it.

In the beginning, the biggest concern is to make the business grow. This is often at the expense of the bureaucratic and regulatory parts aside.

However, it is very important to define the relationship between the partners from the beginning to define the company’s purpose, what is the position of each founder within the organization in case it works out and in case it does not work out, and how the partners will divide eventual expenses or even any remaining value.

The memorandum of understanding can serve to guide the partners, minimise risks and avoid early dissolution, as well as demonstrate organisation, which can be attractive to new investors.

How is the document structured?

The Memorandum of Understanding usually covers the following:

  • The subject matter of the transaction.
  • Financing details.
  • Due Diligence terms.
  • Whether the offer is binding or not.
  • The price
  • Internal and third-party approvals, if applicable.
  • Future for the target company.

In most cases, the buy side will want the Letter of Intent to be non-enforceable but exclusive, this gives them more flexibility to walk away from the deal but prevents the seller from searching for other potential partners. 

It is important to note that this memorandum does not substitute the deed of incorporation, its advantage is to build a healthy and secure ecosystem for the partners and the business.

Process of Letter of Intent

The Letter of Intent is the first step towards engaging in a business transaction. The process usually is straightforward and goes as follows:

  • Meet with the client to establish the main points of the Letter of Intent
  • Negotiate with the counterparty on the Letter of Intent’s main terms
  • Once both parties agree to a document, they can either sign it privately or before a notary public.

OUR WORK

We are a department formed by qualified legal experts who have been trained in the field of corporate law. We work on these requests every day and it’s our passion. For us, Lexidy is a way of life and what excites us the most is to be able to deliver the happiness and satisfaction of a successful process. We want to help you achieve your goals and dreams.

Maria Eduarda

Maria Eduarda

Legal Trainee
Rita

Rita Figueiredo

Lawyer, Head of Lisbon
Jose Varanda

Jose Varanda

Lawyer

IS TO MAKE CLIENTS HAPPY

Frequently Asked Questions

Letters of Intent are not contracts and therefore not binding. We always advise getting a legally enforceable agreement beforehand. 

However, there may be specific terms within the letter of intent that are legally enforceable, such as:

  • Measures to both parties from poaching each other’s employees. This is called on-solicitation.
  • Legally enforceable obligations towards privacy.
  • Measures to prevent parties from negotiating with other entities. This is known as exclusivity.

Signing a Letter of Intent before a Notary Public serves as proof that the document exists. It also binds both parties to its conditions.

There may be penalty clauses that need to be enforced and the involvement of a Notary Public ensures that these are recognized.

Letters of Intent are regulated in Portugal. However, there could particular clauses that are binding. Below are two examples.

  • Non-contractual liability – when one party simply decides to break off negotiations without just cause for the end of the agreed exclusivity period.
  • Contractual liability – this arises if parties are in a confidential period and one of them breaches it.

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