Letter of Agreement Template

Letter of Agreement Vs. Contract

Once one of the parties has composed an Agreement Letter and the other has either signed it or responded with a note that confirmed their readiness to sign a legally binding document, the counterparts can draft the final version of the contract. The difference between these two documents lies in their binding force - while a Letter of Agreement does not oblige the parties to follow the provisions included in writing, the contract the companies sign after the negotiations is valid and the failure to comply with the contractual duties may result in monetary loss and legal disputes . Additionally, a contract is often signed in the presence of a notary public and registered with the local authorities while there is no such requirement for a simple Agreement Letter.

How to Write a Letter of Agreement?

Here is how you can prepare a Letter of Agreement:

1. While there is no universal Letter of Agreement format, still, it is considered appropriate to maintain a professional tone, use a company letterhead for this document, utilize traditional fonts (Arial, Times New Roman, Georgia), and include a formal greeting and closing to address the recipient and show respect and gratitude to the party that has agreed to do business with you.
2. Greet the letter reader - if you are negotiating directly with the business owner or with a specific representative of the entity, you should include their name in the salutation. Identify your own company by its name and contact details. Refer to the purpose of the letter straight away - traditionally, a statement of this kind is created to summarize the previous talks, draw conclusions, and propose a concrete plan of action.
3. List the terms of the future contract . While it is not required to list every clause you are going to include in the final agreement especially if this is not the first collaboration of the companies and they know each other's expectations, at a minimum, you need to state the topic of the agreement, the duration of the contract, the prevailing law, and the financial framework. Make sure you explicitly outline the corresponding rights and obligations of both parties and establish a system of fines and penalties in case either of the entities fails to meet the requirements recorded in the contract.
4. If you are dealing with a prospective business partner for the first time or you believe there may be any difficulties in the future, it is recommended to draft and send several Letters of Agreement during the negotiation process to make sure both parties are aware of each other's plans and aspirations and avoid misunderstanding.
5. When the letter is ready, sign it and leave space for the other party to sign - you may note that this signature means they give their consent to enter into a contract both businesses will be required to adhere to.

Haven't found the template you're looking for? Take a look at the related templates and samples below:

• Non-Binding Letter of Intent Template;
• Sample Breach of Contract Demand Letter;
• Business Contract Termination Letter Template.