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Desiree, here are this issue's Words of Wisdom for you!
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 A Note from the Publisher
Dear Desiree,
 It's summertime in New York, and along with the hot and humid conditions comes another scourge of summer: apartment construction. My upstairs neighbors have "taken off" for the summer - retreated to their dacha in the Adirondacks -- leaving a bevy of plumbers, waterproofers, and tilers to drill, rip up, scrape, and hammer at their rooftop terrace. Which just happens to be right above my apartment. The vibrations are so intense on occasion that it feels like they're going to come right through my ceiling!
But it's been a powerful lesson in staying calm and focused. I've found alternatives, discovered ways to block out the noise (mentally, not necessarily with super-duper earplugs), and have developed a new flexibility in my working patterns. I've also begun to be more generous with my expectations for what I can accomplish (definitely something I needed to learn in any event). We'll see how long this new-found peace of mind lasts . . . but I give at least partial credit to Eckhart Tolle's The Power of Now, which is featured in this month's "Spotlight".
This Month's Feature Article...
Second to wanting the perfect one-page agreement, I find that entrepreneurs crave a letter of intent. Maybe because they're hoping it will serve the same purpose: short, sweet, and just enough information to keep everyone in line. Problem is, no minimal agreement can do that. It's not like a letter of intent can serve like a proverbial string around your finger to remind you to do something. [And that reminder is usually simple, like take out the garbage, or write a thank-you note to Aunt Fannie]. If you're using it as a deal memo, you have to be very careful about what you put in and what you might want to leave out. Find out more in this month's feature article, Drafting a Letter of Intent Without The Pitfalls.
Wishing you wisdom and wealth,
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Feature Article
Drafting a Letter of Intent without the Pitfalls
By Nina L. Kaufman, Esq.
 Letters of intent can be dangerous things in the wrong hands. Also called memoranda of understanding, term sheets, or discussion sheets, a letter of intent (LOI) is a document that outlines an agreement between two or more parties before the agreement is finalized. Kinda like a "pre-agreement agreement." Paradoxically, entrepreneurs often use LOIs when they want a commitment from each other, but not a legally binding commitment (like being a "little bit pregnant"?). They will use them to:
- Clarify the key points of a complex transaction for the sake of convenience
- Declare officially that the parties are currently negotiating, as can happen in a joint venture or merger situation
- Provide safeguards in case a deal collapses during negotiation
Here's the problem with letters of intent:
Depending on the exact wording, LOIs can bind you just as much as any other kind of contract.
Even if that wasn't your intent. In fact, an agreement doesn't have to be labeled an "agreement" or a "contract" in order to be legally binding. Whether or not a document constitutes a binding contract depends only on the presence of well-defined legal elements in the text of the document. And therein lies the rub: sometimes, entrepreneurs are so keen on getting something in writing (but without wanting to expend the legal fees), that they create LOIs themselves without making sure they have the right legal language in there. It's like rushing to have an engagement party, only to find out that you've had a Vegas wedding instead. And walking away from a marriage is a lot messier than breaking off an engagement.
Is Your Memorandum of Understanding Ripe for Misunderstanding?
If not worded properly, letters of intent can be construed very differently that you originally intended. Here's a cautionary tale:
Casey (from California) and Debra (from Delaware) were colleagues, eager to start a holistic health center in Sedona Arizona. They had excitedly discussed their visions for the center. They were still in the early planning stages and weren't ready to sign a partnership agreement (so they thought), but wanted to make a concrete commitment to the venture - and to each other.
So they created a letter of intent. The LOI indicated that they were committed to developing the idea and forming the business within 9 months and they each would own 50%. Each would contribute $10,000 in start-up capital and Casey would scout out real estate while Debra would look into licenses, regulations, and other administrative details. They both would keep their discussions confidential and exclusive to each other.
Trouble was, Debra didn't do any of the work she promised. Casey invested a lot of money in airfare, hotels, and brokers' fees in trying to secure a location for the center and wanted Debra to reimburse her for half. Debra refused. Casey sued in California. Debra replied that Casey didn't have a case - after all they had only signed a letter of intent. The court disagreed with both of them. It held that Casey needed to bring her lawsuit in Delaware, where Debra lived. But also, that there was enough material terms in the LOI to make the obligations legal and binding upon them as business partners, not just two people exploring an idea. So Debra would have to share in the expenses (not just the profits) of the venture.
Why might a court find that way? For example, nowhere did the letter of intent say that Casey and Debra's relationship was subject to negotiating and signing a partnership agreement. Or that there were open-ended terms that both parties would need to agree upon before taking the next step. Such a result is v-e-r-y different from a "we can both just walk away if this doesn't work out" attitude that many entrepreneurs have in mind when signing a letter of intent.
Letters of intent are supposed to make things easier by having the basic terms in writing. Ironically, you need an attorney even more with this type of agreement than you might with one that contains every jot and tittle . . . precisely because what's left out can come as a nasty surprise. Especially if you don't have the right language in the agreement that lets you exit the deal easily and gracefully. So make sure your letter of intent clearly state what you intended. Be sure to consult with an attorney before signing this type of an agreement.
© Copyright 2008 Wise Counsel Press LLC. WANT TO USE THIS ARTICLE FOR YOUR E-ZINE OR WEBSITE? You can, as long as you include this blurb with it: Nina L. Kaufman, Esq., is a small business attorney and the founder of Wise Counsel Press LLC, which offers easy-to-understand legal strategies and information products that protect small businesses and save them money...wisely. To learn more, and to sign up for their FREE how-to articles and FREE audio class, visit www.WiseCounselPress.com.
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Spotlight On
I've been told I need to calm down and not pile too much on my plate. They're right. It's a bad habit I've had since childhood, when I was studying piano, violin, and clarinet . . . and ended up playing none of them exceptionally well. [I could sight-read music easily, which helped me to skate through music practice. That talent takes you only just so far]. Maybe it's the slower pace of summer, or the insistent recommendations of friends, but I've found myself reading a number of books on . . . meditation.
 From Wisdom Walks, which I featured in the April ezine, to Eckhart Tolle's The Power of Now, to Mark Thornton's Meditation in a New York Minute, I'm getting the message that I need to rest. Even in just a couple of short weeks, I have learned that I can meditate for one minute. Concentrate on nothing but my breathing for 60 seconds. Given all the craziness going on around me, I've been surprised at how calm I have been with situations that would normally
leave me stomping and snorting on my way to grabbing an Uzi and going postal. Late payments from debtors. Construction noise (the head-splitting kind). Difficult relatives. Snarly adversaries. I'm able to do it all with a ever-so-slightly lighter heart . . . and I'm sleeping better. Worth a try?
About Wise Counsel Press
Wise Counsel Press LLC offers entrepreneurs and small businesses easy-to-understand legal strategies on how to make smart decisions, protect their companies, and save money...wisely. Our Wise Counsel GuideTM series does this by helping you spot the legal issues you need to face and know the questions to ask, rather than trying to turn you into "instant attorneys".
If you liked today's issue, you'll LOVE our 10-step resource Guides to small business legal issues! Browse the table of contents now.
Wise Counsel Press also offers a FREE audio 'brief', FREE articles, and other resources to help entrepreneurs and small business owners develop the strong legal foundation they need and deserve so that they can grow and prosper. Learn more now at www.WiseCounselPress.com.
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© Copyright 2006 - 2008 Wise Counsel PressLLC . All rights reserved. Words to the Wise is a monthly publication. The information contained in this e-zine is meant for your general information only and is not intended to substitute for the specific advice of legal counsel about your particular situation and circumstances.
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