There are various reasons why organizations enter into letters
of intent, memoranda of understanding or engagement letters
(collectively referred to in this post as "LOI") instead
of more fulsome definitive agreements. What organizations
always need to keep in mind is that LOIs should be carefully
considered and reviewed because they may have significant legal
consequences. I asked my colleague Nick Pasquino to point out
some areas to consider before signing a LOI.
Question: Why would an organization want to sign a
Nick: There are a number of reasons where I see
LOIs being used. Many times parties are eager to start a
project together quickly with a short LOI outlining fundamental
business terms, on the understanding that a definitive agreement
will be finalized at a later date (I always recommend against doing
this without advice to reduce the likelihood of encountering issues
later down the road). The other scenario I see LOIs is in
negotiating significant transactions like amalgamations or asset
sales, or commercial joint ventures, etc. LOIs can be used to
set the key terms of the deal early on, to ensure everyone has the
same basic understanding of what will be involved, and to establish
a framework for negotiations. A LOI can be used to determine
if it is possible to settle deal terms, without the added expense
of a formal agreement.
Question: What are some of the areas that a LOI should
Nick: A LOI can impose legally binding
obligations between the parties unless it is expressly stated to be
non-binding. Organizations need to be very careful here as
the words matter! In many cases, some parts of LOIs are
binding and others are non-binding. In the transaction context, for
instance, it is common for fundamental concepts like
confidentiality, negotiation exclusivity, allocation of costs and
expenses, etc. to be binding, and for the "proposed deal
terms", which will usually be subject to negotiation and due
diligence (like deal structure, pricing, adjustments, etc.), to be
non-binding but listed in the LOI to establish a framework for
Question: Are LOIs enforceable?
Nick: It depends. If all the legal elements of
a contract are present (offer, acceptance, consideration, intention
to enter into contractual arrangements, certainty of terms, etc.),
and the LOI does not expressly provide that the terms are
non-binding, the LOI can create legally enforceable obligations
– so they must not be entered into lightly!
Question: Any last words for organizations to consider
before signing a LOI?
Nick: Very often LOIs are negotiated without
the benefit of legal advice either because the organization viewed
the LOI as an informal commitment, or elected not to involve
counsel for financial or other reasons. If the LOI is not
properly structured an organization can find itself in a difficult
negotiating position or may be stuck with legally enforceable terms
which it did not anticipate. The better approach is to speak
to legal counsel before signing the LOI to ensure it will actually
achieve its purpose for your organization.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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