EXCLUSIVITY CLAUSE: Letter of Intent (LOI) to purchase a Business
Corporate Buy-out - Selling Shares - Forced to Sell - Buying out Shareholders - Buying into a Company
Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
An exclusivity clause in a Letter of Intent (LOI) for a business purchase is a legally binding term where the seller agrees not to solicit, negotiate, or entertain offers from any other potential buyers for the business during a specified period of time. This clause effectively takes the business off the market for the duration of the exclusivity period, which typically ranges from 30 to 90 days.
The exclusivity clause is primarily for the buyer's protection and is considered a critical component of a serious Letter of Intent, as it serves a number of key aspects for the buyer, including:
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Protects Investment in Due Diligence: The buyer is about to spend significant time and money (on legal, accounting, and financial professionals) to conduct due diligence [more on due diligence]. The exclusivity clause ensures that after this substantial investment, the seller can't simply take the information the buyer has gathered and use a competing, higher offer to leave the buyer with nothing but wasted expense.
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Secures the Deal: It prevents the seller from using the buyer's offer as a stalking horse - a term used to describe a bid that is only used to solicit higher offers from other parties. It commits the seller to negotiate in good faith only with the buyer.
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Creates a Focused Negotiation Environment: By eliminating the distraction and pressure of competing bids, the clause allows both parties to focus exclusively on resolving the remaining issues and successfully negotiating the definitive Purchase Agreement.
As such, the exclusivity clause is the buyer's assurance that the seller is serious and that the buyer's effort and expense in undertaking its due diligence and establishing financing for the business acquisition will be protected for a defined window of time. And as with the confidentiality clause, it is typically a binding term of the Letter of Intent, making it legal enforceable against the party that is in breach.
For knowledgeable and experienced legal representation in undertaking business acquisitions, or facilitating the sale of your current business, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
