M&A Letters of Intent: Top Tips for Successful Deals

M&A Letters of Intent: Top Tips for Successful Deals

Striking a deal to buy or sell a business is exciting, and a letter of intent (LOI) is an important early step. Get it right and you position yourself for a successful transaction. Get it wrong and you risk misunderstandings or worse. Here are some best practice tips to get your transaction off to a strong start:

1. Personalize for a Friendlier Approach

A letter of intent can come off as dry and formal. As a buyer, you can differentiate yourself by making it more personal. Lead with what you admire about the business, including recent growth, a strong team, or a compelling product or service. Use clear, straightforward language that businesspeople will understand, including your description of the deal structure and tax treatment. Avoid excessive use of defined capitalized terms. If you are buying Acme, Inc. you can just call it Acme, there is no need to define it as (“Acme”). Additionally, break up long, complex sentences for readability.

2. Seller’s Big Opportunity

As a seller, your leverage is at its peak just before signing the LOI. The final price almost never goes up and sometimes goes down. If a deal term is important to you, now is the time to include it in the LOI. For example, if you want tight limits on the buyer’s ability to make a claim against you after closing, you can specify that upfront. Work with your advisors to identify and prioritize key terms for your specific deal.

3. Clarity on Price and Deal Structure

Your LOI should answer the questions that matter most: 

  • What is being purchased? Is anything being excluded?
  • What is the price?
  • Does the cash stay with the business?
  • What happens to the debt and other liabilities?

Buyers often require that businesses have a normal level of working capital at closing (details to be worked out in the definitive agreement). If the deal contains any deferred purchase price or an earn-out, make those terms as clear as possible. 

4. Address Due Diligence

Your LOI can identify key focus areas for due diligence. Streamlining the diligence request list to focus on the target business can keep things moving. A concise, tailored list often works better than a 15-page, 200-item checklist that slows things down.

5. Exclusivity

As a buyer, once you invest time and resources in a deal, you will want exclusivity. This is an agreement that the seller won’t pursue other offers for a set period. Sellers on the other hand want flexibility if a deal stalls. Exclusivity periods typically range from 30 to 90 days, depending on the transaction.

6. Map Out Timelines

Sellers want to know how long it will take to reach closing. Buyers can differentiate themselves by moving things along with a brisk timeline. Including intermediate milestones such as due diligence delivery or completion of site visits can keep both sides aligned.

7. Non-Binding LOI and Avoiding the Accidental Deal

An LOI is a key step, but it is not the final binding deal. Both parties should state clearly that the LOI does not create a binding obligation to complete the deal. Courts have sometimes ruled that LOI’s, term sheets, or memorandum of understanding constituted binding agreements, especially when phrased as commitments. Avoid working with terms such as “shall purchase” or “will acquire,” which may imply obligation. Use softer terms like “propose” or “intent.”

Some terms should be binding on both parties, such as confidentiality, exclusivity, expense allocation, governing law, and the paragraph about it being nonbinding.  Your lawyer can provide language to make it clear what is non-binding. 

8. Terminating an LOI

A good LOI will state that either party can terminate negotiations at any time before signing a definitive agreement. It should clarify which provisions survive that termination, such as confidentiality.

With careful drafting, an LOI will do what it’s meant to do: lock down key terms and provide a clear roadmap to closing. Contact your Varnum attorney to prepare or review your LOI to ensure clarity and protection.

New H-1B Proclamation Imposes $100K Fee and Entry Restrictions

9 23 Advisory H 1b100kfee 1200x628

The new presidential proclamation, which institutes a $100,000 fee and places restrictions on the entry of H-1B nonimmigrants into the United States, has created significant confusion. Section 1(b) of the proclamation instructs the Secretary of Homeland Security to restrict decisions on H-1B petitions for foreign workers “who are currently outside the United States”. However, subsequent pronouncements from relevant agencies and from the White House state that the restriction applies to any new H-1B petitions submitted after the deadline.

To clarify, here is what we currently understand to be outside the scope of the proclamation, according to U.S. Citizenship and Immigration Services (USCIS):

  • Any H-1B petitions submitted before Saturday, September 20, 2025.
  • Any previously issued H-1B visa or H-1B status.
  • The ability of H-1B visa holders (and those who are visa-exempt) to continue to travel to and from the United States.
  • H-1B “renewals”.

Both USCIS and U.S. Customs and Border Protection (CBP) have issued internal memos confirming the above. The U.S. Department of State (USDOS) has issued similar guidance, but it does not appear to be publicly available. H-1B visas that fall within these criteria are still being issued, and H-1B visa holders are still entering the U.S. by air, land, and sea.

Moving forward, we understand the following will apply:

  • All “new” H-1B petitions filed on or after Sunday, September 21, 2025, will require a one-time $100,000 payment.
  • Cap-exempt H-1B petitioners are not exempt from the $100,000 payment.
  • The new fee requirement will remain in place for one year.
  • Within 30 days from the next H-1B lottery (March 2026), the agencies will recommend whether to extend the $100,000 payment requirement.

Uncertainty remains because the proclamation and agency pronouncements use broad language and seem to avoid terms that are defined in the immigration regulations relative to USCIS H-1B processing. For example, it is unclear whether H-1B extension petitions for a change of employer, as opposed to extensions with a current employer, will be viewed as “renewals”.

The proclamation also allows the Department of Homeland Security (DHS) to designate specific individuals, companies, and industries that are in the national interest and thus exempt from the $100,000 payment requirement. No mechanisms for seeking such designations have been disclosed. It is unclear whether exemptions will be automatic or if employers must submit requests similar to the National Interest Exception (NIE) letters used during the Covid-19 travel bans, or if the standard will be similar to the EB-2 National Interest Waivers. 

Some industries are already exerting political pressure. Bloomberg News reported today that a White House spokesperson stated, “The Proclamation allows for potential exemptions, which can include physicians and medical residents.” Still, “can” does not mean “will”. Academia and other industries may begin pushing for exemptions. Employers and foreign workers will need to monitor the situation closely.

Additional Resources:

If you would like assistance with immigration planning in these uncertain times, please reach out to any member of the Varnum Immigration Team.

Urgent H-1B Alert

Varnum’s Immigration Team is closely tracking developments. Read our latest advisory: New H-1B Proclamation Imposes $100K Fee and Entry Restrictions.

The White House issued a proclamation yesterday evening requiring a $100,000 fee for H-1B employees outside the U.S. seeking entry. It takes effect at 12:01 a.m. on Sunday, September 21.

Litigation is expected as early as this weekend, but travel will be impacted early next week. If you have H-1B employees outside the U.S., they should attempt to re-enter today (Saturday, September 20, 2025). If they cannot, there may be delays until an injunction is issued. H-1B employees currently in the U.S. are not impacted but should not leave the U.S. until further clarification is issued. There is a limited national-interest exception for certain employers, positions, or industries that we can review for travel this week.

Read the full proclamation here: Restriction On Entry of Certain Nonimmigrant Workers

Contact a member of the Varnum Immigration Team with any questions.

 

Estate Planning Strategies for Venture-Backed Startup Founders

9 18 Advisory Estateplanningbackedfounders 1200x628

For startup founders backed by venture capital, estate planning aims to manage timing, liquidity, and potential tax exposure ahead of an anticipated exit. A founder’s largest asset is often company equity, but early-stage equity is highly illiquid, subject to transfer restrictions, and often limited by investor protective provisions.

Thoughtful estate planning converts those limitations into opportunities by protecting family wealth, preserving control, and minimizing tax drag. The strategies outlined in this advisory integrate personal and corporate objectives and are most effective when implemented well before a liquidity event is expected, valuations shift dramatically, or when entering into a transaction that may restrict ownership in ways incompatible with transfer tax planning.

Protecting and Positioning Business Equity with Irrevocable Trusts

Founders often hold restricted stock or stock options governed by investor rights agreements, right-of-first-refusal provisions, and drag-along clauses. Transferring such interests into a trust or other planning vehicle requires coordination with company counsel and major investors. Most stockholder agreements permit transfers “for estate planning purposes,” though notice and consent provisions vary. Once the legal mechanics align, founders often use:

  • Grantor Retained Annuity Trusts (GRATs): Transfer appreciating shares out of the founder’s taxable estate at a minimal gift-tax cost while allowing the founder to “annuitize” value back over time. If the founder survives the GRAT term, post-transfer appreciation passes to beneficiaries tax-free.
  • Intentionally Defective Grantor Trusts (IDGTs): Remove future appreciation from the estate entirely, often paired with a promissory note sale. The transfer freezes asset value for estate tax purposes.

Both strategies allow founders to make further tax-free gifts through income tax payments on trust assets. Each tax payment reduces the founder’s estate while preserving trust growth undiminished by income tax. Executing transfers during a low-valuation window, in the early stages or after a down round, maximizes future estate-tax savings. With proper planning and sufficient assets outside of the irrevocable trust, basis step-up can even be preserved.

Timing the 83(b) Election and QSBS Status

Soon after purchasing founder stock, founders must decide whether to file an 83(b) election within the 30-day statutory window for stock subject to vesting. Electing immediate taxation locks in current value but positions future appreciation for capital-gains treatment. If shares meet the five-year holding and active-business requirements for qualified small business stock (QSBS), each shareholder, including a trust, may exclude up to $10 million (or ten times basis) of gain at sale. Because QSBS exclusions can be “stacked” across multiple trusts, early transfers can multiply tax benefits.

Succession of Management and Control

In venture-backed companies, investors rely heavily on founder involvement. Where governance rights are central to the founder’s vision, common with dual-class structures, consider:

  • A voting proxy or special purpose entity to preserve board representation without forcing a trustee into daily operations.
  • A divided trusteeship, assigning corporate oversight to a trustee familiar with venture management.  
  • A directed trusteeship, allowing a trustee to follow another designated person’s direction on company matters.  

Founder Liquidity, Insurance, and Cash for Taxes

Even founders expecting a lucrative exit may remain “wealthy on paper” for years. If a founder dies before liquidity, there may not be enough other liquid assets to pay any estate taxes, which are due within nine months, with a six-month extension available. A well-funded life insurance trust can cover taxes and without selling shares at a discount or forcing a rushed secondary sale. Larger estates may consider layered coverage, reducing premiums over time while maintaining protection until exit.

Powers of Attorney for Assets Outside of Trusts

Because founders often travel and maintain demanding schedules, durable powers of attorney can be critical for assets outside trusts. Naming an agent familiar with venture finance, such as the impact of exercising options during blackout windows, prevents errors that could harm personal or corporate interests.

Estate Planning is Part of Business Planning

Estate planning for venture-backed founders is an extension of the strategic thinking that drives a company’s success. Addressing transfer restrictions, tax efficiency, and continuity of control early, ideally before valuations surge or exit plans solidify, helps protect both beneficiaries and the equity founders have built.

To discuss how these strategies can benefit your estate with venture-backed assets, contact a member of Varnum’s Business and Corporate Practice Team or Estate Planning Practice Team.

Key Impacts of Florida Repealing Sales Tax on Commercial Leases

Florida Repeals Sales Tax on Commercial Leases Effective Oct. 2025

Signed into law on June 30, 2025, House Bill 7031 eliminates the sales tax on commercial leases in Florida. Effective October 1, 2025, Florida will no longer be the only state in the country that imposes such a tax on commercial leases, a change expected to save commercial tenants billions of dollars annually. While the repeal is a welcome change for businesses, landlords and tenants should prepare to ensure a smooth and efficient transition.

Historical Background

Florida enacted Chapter 212.031, Florida Statutes, in 1969, imposing a 4% sales tax on rent charged under a commercial real estate lease. The rate fluctuated over the years, at times reaching 6%. Since 2016, the Florida legislature has focused on lowering the tax rate, reducing it to as low as 2% in July 2024. HB 7031 completes this process, permanently eliminating the tax on commercial leases.

What Does HB 7031 Do?

House Bill 7031 repeals both the state-level tax, currently at 2%, and optional local surtaxes, typically 1% – 1.5%, saving commercial tenants across Florida an estimated $2.5 billion annually. The repeal applies to office, retail, and industrial leases. Supporters expect the change to lower tenant costs, simplify compliance for landlords, and strengthen Florida’s business climate.

Importantly, the bill only affects rent due after October 1, 2025. Rent due on or before September 30, 2025, remains taxable, even if the payment is made after the October 1 deadline. However, prepaid rent for amounts due on or after October 1, 2025, will fall under the scope of the bill, and the sales tax should not be incorporated into the payment.

What Remains Taxable?

The repeal applies only to commercial leases governed by Chapter 212.031. Other property-related rentals remain subject to sales tax under Chapter 212.03, including:

  • Short-term residential rentals (less than 6 months)
  • Parking space rentals
  • Self-storage rentals
  • Boat slips and docking facilities
  • Aircraft hangar leases

Landlords should confirm their lease does not fall under one of these categories before eliminating sales tax charges.

Key Considerations for Landlords and Tenants

Landlords and tenants should review current leases to determine the portion of rent subject to sales tax and ensure no tax is charged or paid after October 1, 2025. Lease templates and existing agreements should be updated to remove references to the commercial lease tax, unless relating to one of those leases that remain subject to tax. Landlords may want to issue notices to tenants to prevent confusion during the transition. Landlords and Tenants should also monitor their annual reconciliations for 2025 additional rent to confirm that sales tax is not applied to periods on or after October 1, 2025.  Landlords should also confirm which parts of their portfolio, if any, remain subject to tax.

Final Considerations

The repeal of the tax provides commercial tenants with significant annual savings on their leases. Landlords and tenants should take action now to maximize benefits and ensure a smooth transition.

For more information about Florida’s commercial sales tax repeal, contact a member of Varnum’s Real Estate Practice Team.

2025 summer associate Nolan Thomas contributed to this advisory. Nolan is currently a law student at the University of Miami.

Shared Earnings Arrangements Offer Flexibility for Startups, Investors

Shared Earnings Arrangements Offer Flexibility for Startups, Investors

An increasing number of startup founders are operating their companies as lifestyle businesses, prioritizing revenue and sustainable growth over scaling for sale or public offering. In the wake of this phenomenon, funders who have invested in such companies with traditional early-stage investment vehicles like SAFEs (Simple Agreement for Future Equity) or convertible promissory notes are left waiting for a liquidity event, such as further qualified financing or liquidation, in order to convert their investment into equity or secure a return on investment. With no clear conversion timeline, investors are left wringing their hands, waiting for the emerging company to grow quickly or applying pressure to the startup in order to trigger a conversion event.

In this place of limbo, alternative investment vehicles have slowly entered the scene, seeking to meet the priorities of both funders and slow-growth founders. Take, for instance, shared earnings arrangements.

What Is a Shared Earnings Arrangement?

A shared earnings arrangement is an alternative to traditional equity financing that allows investors to receive a percentage, often capped, of the company’s total earnings. The scope of earnings subject to sharing is typically negotiated and can include dividends and/or retained earnings, as well as adjustments for founder-specific expenses, such as founder salaries.

Investors make an upfront capital investment and then realize the return on investment upon receiving their agreed percentage of earnings. Shared earnings models that adjust for a negotiated threshold for founder salaries exclude the earnings needed to fund those salaries from the earnings investors participate in, allowing the founders to pay themselves a living wage first. Shared earnings are usually capped at two to five times the initial investment, after which payments cease and an equity stake may be retained, depending on the arrangement.

Why Use a Shared Earnings Arrangement?

  • Alignment: Establishes alignment between founders and investors to build profitable, sustainable businesses without the pressures inherent in traditional early-stage investment vehicles, which often lead to the need for additional funding or company sale.
  • Control: It gives founders greater control over business growth while balancing investors’ need for returns with founders’ need to keep options open, whether building a lifestyle company or a billion-dollar venture.
  • Sustainable: Unlike traditional early-stage investment structures, this arrangement doesn’t force founders into growth-at-all-cost scenarios and allows them to focus on building healthy, profitable companies that can thrive in the long term.
  • Quicker Return: Investors can start realizing a return much sooner than if they needed to wait for a conversion event.
  • Flexible: The arrangement can be nimble enough to allow investors to retain a small equity stake after the earnings cap is reached. That stake may be converted if the company is sold or raises further funds in a traditional, qualified financing event.

What Are the Potential Drawbacks?

For founders

  • Limit on Profit: Shared earnings arrangements require founders to share a portion of what would otherwise be retained earnings or founder income until the investors’ cap is met. This can feel inhibiting during profitable years, particularly if the cap is on the higher end.

For funders

  • Limited Upside: Shared earnings arrangements cap shared earnings returns, reducing pressure on founders for an exit event. This may deter traditional funders who rely on fast-scaling investment models with significant buyout events for a substantial return.
  • Unfamiliarity: These are new investment arrangements. Funders may be wary of entering into such an arrangement when the space is still in its early stages of development and there are few examples of success.

Ultimately, this growing investment vehicle is worth considering for both entrepreneurs seeking to prioritize revenue and a balanced lifestyle, as well as investors looking for a steady return on sustainable-growth startups.

If you would like to find out more about this arrangement or discover funding options for your venture, contact a member of Varnum’s Startup Practice Team.

2025 summer associate Tony Mayotte contributed to this advisory. Tony is currently a law student at the University of Michigan.

Ninth Circuit Limits Privacy Litigation for Web-Tracking Tools

Ninth Circuit Limits Privacy Claims Over Routine Web Tracking

As Varnum has previously reported, a surge of lawsuits and pre-suit demand letters has targeted companies that use routine analytics tools, such as session-replay scripts, pixels, and similar code, to understand how visitors interact with their websites. Plaintiffs typically allege violations of California privacy statutes and common-law torts, hoping the threat of costly discovery will produce a quick, nuisance-value settlement.

Recently, however, the 9th U.S. Circuit Court of Appeals dealt a significant blow to those tactics, ruling that ordinary web-tracking when standing alone, is neither sufficiently harmful nor “highly offensive” enough to support the statutory or tort-based claims based on website tracking.

In Popa v. Microsoft Corporation, Case No. 24-14, — F.4th –, 2025 WL 2448824 (9th Cir. 2025), the 9th Circuit made clear that the mere collection of website-interaction data does not, by itself, establish the “concrete harm” needed for Article III standing. The court also found that routine tracking falls well short of the “highly offensive” conduct required for claims such as intrusion-upon-seclusion or public disclosure of private facts. Instead, the Court likened monitoring user interactions to “a store clerk’s observing shoppers in order to identify aisles that are particularly popular or to spot problems that disrupt potential sales.” 

Implications for Businesses

Popa gives companies that deploy session-replay, pixel, or similar tracking technologies on their websites another defense against demand letters and complaints alleging privacy violations. By holding that routine web-tracking does not, without more, rise to the “highly offensive” level required for either intrusion-upon-seclusion or public disclosure of private facts, the Court narrowed the field of viable claims available to plaintiffs.

Companies can now cite Popa at the pleading stage to seek dismissal of claims based solely on the passive collection of interaction data. The decision should disrupt the prevailing plaintiff strategy of threatening costly discovery to wring out nuisance-value settlements. Defendants can credibly argue that dismissal is appropriate before merits-based discovery begins, particularly when plaintiffs cannot allege the collection of embarrassing, invasive, or otherwise private information.

Varnum is experienced in handling online privacy and web-tracking litigation. If you receive a demand letter or lawsuit, contact your Varnum attorney, Varnum’s Data Privacy Practice Team, or Varnum’s Litigation Practice Team.

NHTSA Adds Three Rulemakings That Will Impact Automated Vehicles

NHTSA Adds Three Rulemakings That Will Impact Automated Vehicles

On September 4, 2025, the National Highway Traffic Safety Administration (NHTSA) announced the addition of three rulemakings to the Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions (Unified Agenda). The proposals seek to clarify the applicability, or lack thereof, of certain federal standards to automated vehicles (AVs). The rulemakings concern:

  • FMVSS No. 102, “Transmission shift position sequence, starter interlock and transmission braking effect.”  
  • FMVSS No. 103, “Windshield defrosting and defogging systems,” and FMVSS No. 104, “Windshield wiping and washing systems.”
  • FMVSS No. 108, “Lamps, reflective devices, and associated equipment.” 

Step Forward, But Not Full Relief

If finalized in accordance with Transportation Secretary Sean P. Duffy’s plan to modernize national vehicle standards, the proposals would relieve the AV industry from seeking exemptions for the four FMVSS covered by the rulemakings. While a step forward for the industry’s push for federal action to support the advancement of AV technology, this does not provide complete regulatory relief.

Unresolved Legal and Technical Questions

Significant legal, technical, and policy questions remain, including what information must be provided to AV passengers, how NHTSA will test braking systems without brake pedals, and how to reconcile non-traditional seating positions with crash test dummies designed for forward-facing seats.  

Part of a Broader Modernization Effort

Although these separate actions may be new to the Unified Agenda, NHTSA’s effort to modernize the FMVSS is not. Since 2018, NHTSA has maintained an omnibus rulemaking titled Facilitating New Automated Driving System Vehicle Designs for Crash Avoidance Testing 2127-AM00 The initiative follows NHTSA’s May 2019 advanced notice of proposed rulemaking, Removing Regulatory Barriers for Vehicles With Automated Driving Systems. In 2022, NHTSA finalized a rule updating crashworthiness standards to account for AVs, though it has limitations for today’s industry.

Opportunities and Risks of a Piecemeal Approach

Breaking regulatory updates into smaller rulemakings may accelerate progress by targeting standards that are easier to revise. This approach aligns with Executive Order 14192, Unleashing Prosperity Through Deregulation, which requires that for every new regulation, at least 10 existing ones must be identified for repeal.

However, a piecemeal strategy also carries risks. Each rulemaking must independently advance through the U.S. Department of Transportation and the Office of Management and Budget, where delays or bottlenecks may occur. The challenge is compounded by the fact that NHTSA currently has 70 rulemakings on the Unified Agenda, but only a fraction of its normal staff to advance them[1].

Varnum’s Vehicle Safety and Mobility Team will be closely monitoring these regulatory developments and is prepared to assist clients in navigating the complexities of emerging AV regulation. 

[1] Transportation U.S. auto safety agency shedding more than 25% of employees: Reuters