What is a letter of intent?

A letter of intent is a document that expresses the intention of the parties that sign it to enter into a contract at a future date. Although it doesn’t create the same contractual relationship that a detailed contract would do, a letter of intent can still be legally binding, depending on how it is written, and what actions the parties take after the letter is signed.

Who is our UK Slicing Pie letter of intent useful for?

This is useful for UK bootstrapping startup teams that want to put something in writing to say that everyone is committed to work on the business and share equity dynamically using Slicing Pie, before they put legal shareholder and worker contracts etc in place.

What does this letter do?

This letter: 

• helps you to summarise who’s contributing what to your business, 
• provides reassurance that people are committed to sharing equity dynamically using Slicing Pie, 
• helps you make some decisions about how you want to manage your business and pie,
• sets out things to consider/do before you set up your dynamic equity arrangements legally, and
• gives you a framework for when you’ll put in place these formal legal arrangements and issue everyone shares. 

It also includes sections on confidentiality, how to handle new joiners and leavers, manage changes, and end things if your business doesn’t work out. 

What does this letter not do?

This letter doesn’t give you legal title to shares or put in place any arrangements for you to do so tax-efficiently. Until you sort out formal legal dynamic equity agreements, you won’t have legal title to your dynamic equity shares, and won’t get any tax benefits. 

When can this letter be used?

It can be used if your team isn’t yet ready to do its Slicing Pie legals, provided you are a UK bootstrapping startup that is still early-stage and at zero/low value, e.g. whilst building your MVP and pre-investment.

Who’s written this letter?

We have - Fairsquare LLP. We’re the UK’s premier Slicing Pie law firm, and we enjoy helping UK Slicing Pie startups.

How much does this letter cost and how may we use it?

Nothing - if you are a startup team that wants to use Slicing Pie to share your startup’s equity amongst yourselves dynamically! We’re making our UK Slicing Pie letter of intent completely free for teams to use for their own equity-sharing purposes, under Creative Commons licence Attribution-NonCommercial 4.0 International (CC BY-NC 4.0): https://creativecommons.org/licenses/by-nc/4.0/.

In practical terms, this means that if you’re a startup that wants to use this to record your own equity sharing commitment: 

• you can share, copy and distribute this to your team members to consider, and tailor it for your own use,
• but you should: 
  • credit Fairsquare LLP as the author of the original letter, 
  • indicate any changes you’ve made (making clear that you are responsible for them, not that we approved or advised on them or your proposed use),
  • only use the letter for the non-commercial purpose of sharing equity dynamically in your business amongst you and your team, and
  • not distribute your tailored letter for others to use.

(If you want to access, link/refer to or use this letter for any other purpose, i.e. you’re not a startup that wants to use Slicing Pie and this letter to share its own equity, then please contact us at hello@fairsquareLLP.com, so we can discuss your interest, proposed use and options, e.g. if you’re an educational provider, incubator, accelerator, law firm, finance provider, business providing goods/services to startups etc.)

Does this letter of intent limit us to implementing Slicing Pie with Fairsquare LLP?

No, it doesn’t. Though if you’re setting up in the UK, as the UK’s premier Slicing Pie law firm, we’ll be delighted if you do! 

How is this letter of intent different from doing full legal Slicing Pie dynamic equity implementation?

It’s very different! One way to think about it is that your letter of intent is like an architect’s house drawing. Whereas sorting out your corporate legal arrangements is like building the actual house, all of you taking ownership of it and moving in to live together - so that you could eventually sell it. Putting in place your full legal Slicing Pie dynamic equity arrangements means you all get legal ownership of your dynamic equity shares in the business - tax-efficiently. But you are only aiming for this if you just sign a letter of intent. 

Can you advise us and/or our team if we have questions about Slicing Pie before we sign this letter? 

Alas no. Please read Slicing Pie and/or contact Prof. Mike Moyer if you have questions about the Slicing Pie model itself. You can book consultations directly with him via his website. He’s spoken with thousands of entrepreneurs worldwide, and is hugely knowledgeable. We always refer general enquiries to Prof. Moyer, out of respect and because it is his main Slicing Pie income stream. So be cool please and contact Mike!

Can you advise us and/or our team if we have questions about this letter before we sign it? 

Alas no. We only have capacity to advise teams when they are ready to do their Slicing Pie legals. This letter is a free resource so: 

• we do not have capacity to advise teams on individual changes or deletions, and 
• we accept no liability for any changes or deletions you might make. 

If you have questions about this letter of intent, please read through these FAQ and our website. 

If we sign this letter of intent and later on something goes wrong, can we sue you?

No! We are providing this letter and FAQ guidance completely free, and without liability. If you use or rely on this letter and/or any of this FAQ guidance, then you do so entirely at your own risk. If you want to make your dynamic equity holdings legally binding and tax-efficient, then you must put in place formal Slicing Pie legal arrangements that are appropriate to your business, e.g. shareholders' agreements, articles, tax elections, financing and IP agreements, LLP deeds, worker agreements etc. 

What info do I need in order to complete the letter of intent (LOI)? 

You’ll need the following: 

• The name of your business
• A description of what it will do, or is doing, i.e. the product(s)/service(s) you’re aiming to sell
• To set up your pie - we strongly recommend that you do this and use your pie for a bit BEFORE you sign this letter, so that you can all decide whether Slicing Pie is for you
• To read through the LOI together and make a few decisions on how you want to manage your business and pie - we’ve highlighted these in blue, just cross through (or delete) the answers that you don’t want to apply
• The names of your grunts, and when they started (or want to start) contributing
• What your grunts are contributing, e.g. if time, how many hours/days they expect to work on the business each week/month, or if cash, how much and when they expect to make it available for the business to spend
• The name of the person who’s going to run your pie - we recommend this is the person who’s responsible for running your business’s finances
• To get everyone to sign the LOI - if more people join later, then you can just add their name to the list of signatories, and their planned contribution and start date to section 2 or an appendix

What information is useful to read before signing this LOI? If you haven’t already, your number one thing should be to read either Slicing Pie or The Slicing Pie Handbook! (We recommend Slicing Pie, as the best introduction.) For certain sections of the LOI itself, you may also find the following links useful: 

Can we include a business plan/timeline in our LOI? Yes, if you want to include a business plan or timeline, or more contribution details than can easily fit into section 2.1, just put these into Appendix 1. Easy. 

Can we make changes to this LOI? If you want to change minor details in your own LOI, or tidy it up by deleting any blue options that aren’t relevant to you, then you can (see below). However, Slicing Pie is very carefully balanced, so we strongly recommend you do not change or delete anything else. If you do so and change or remove e.g. a sentence, sub-paragraph or section which relates to Slicing Pie itself, then fairness will start to break down. (For example if you delete the ‘pie recovery’ section - it would no longer reflect Slicing Pie at all.)

We therefore recommend that you only change or delete things, e.g. if you’re overseas, after taking appropriate local legal advice (see ‘FAQ - overseas’ below). We’re providing this LOI completely free, so we do not have capacity to advise teams on individual changes or deletions, and we accept no liability for any changes or deletions you might make.

We want to include something in this LOI for ourselves that you haven’t - can we do so? You can change minor details in your own LOI to suit your particular business. And you are welcome to let us know if there’s something you think should be improved or included. If so, then we may incorporate this in a future update. However, we’re providing this LOI completely free, so we do not have capacity to advise teams on individual changes, and we accept no liability for any changes you might make.

We want to delete a bit from this LOI. If you want to tidy up your LOI by deleting any blue options that aren’t what you’ve chosen, or the appendices, then that’s totally fine. (We just included the FAQ as we thought some teams might find them helpful.) However, Slicing Pie is very carefully balanced, so we strongly recommend you do not change or delete anything else. If you do so and change or remove e.g. a sentence, sub-paragraph or section which relates to Slicing Pie itself, then fairness will start to break down. (For example if you delete the ‘pie recovery’ section - it would no longer reflect Slicing Pie at all.)

We therefore recommend that you only change or delete things, e.g. if you’re overseas, after taking appropriate local legal advice (see ‘FAQ - overseas’ below). We’re providing this LOI completely free, so we do not have capacity to advise teams on individual changes or deletions, and we accept no liability for any changes or deletions you might make.

Can we change the law and courts to a different country? This letter is written for UK startups, so we’ve specified English law and courts as the default. If you are not a UK-based startup, then it may be better for you to consider another Slicing Pie pre-incorporation agreement instead. Our good friend, Jana Nevrlka at Cofounding.info, has a bunch of excellent ones for mainland Europe that are available here. 

Although you could technically change the law and courts to elsewhere, we strongly recommend that you take legal advice from an attorney in the country you have in mind first. Otherwise you could find that the letter is binding (or not binding) and creates legal, financial and tax problems for you and your team later in ways that you hadn’t intended. (If you don’t state any particular country, then complex rules apply to decide which law and courts have jurisdiction, which adds time and cost.) 

We are a non-UK Slicing Pie startup - can we sign it under English law anyway? This depends on what your country allows: most give parties the freedom to choose which law and courts they would like to apply to commercial contracts - but the specifics vary. You may therefore be better off taking local legal advice from an attorney in your location. (Also see 'FAQ - overseas' below.)

If your jurisdiction does permit choice of law, then this letter does not oblige a business to set itself up legally in England - so if you sign this letter under English law, you would not be required to set up in England if you decide to set up legally elsewhere. 

How do we sign this letter of intent?

You can either sign with a pen, or e-sign. It’s entirely up to you. We like it when people sign the old-fashioned way, i.e. with ‘wet ink’, because we find putting pen to paper really makes people think. Clicking a button is just not the same. We also like it when people get together to sign, because it can mark a nice milestone on their startup journey - photo time! #SlicingPie @FairsquareLLP 

How many copies of this should we sign?

You can all sign one copy, or if you’re feeling extra (and doing things properly), print and sign as many copies as you have signatories. Then everyone can have their own complete signed original. 

How do we get new joiners to sign? 

Easy - just give them the LOI you all signed, and ask them to fill in their planned contribution(s) and start date(s) - whether in section 2 or in Appendix 1 - and sign. Then give everyone a copy. 

What if we sign this letter of intent and then find we can’t use Slicing Pie after all?

That’s fine - we’ve included a get-out clause, e.g. if you decide to incorporate in a jurisdiction or using a legal vehicle type where Slicing Pie can’t be implemented legally (yet). If you’re overseas also check out our overseas FAQ. 

What if we agreed all the details in our letter of intent, but one person won’t sign now?

Signing a letter of intent helps to record everyone’s commitment - but it isn’t essential in order to agree that you want to share equity dynamically. If you all agreed that you want to share equity dynamically using Slicing Pie, have set up a pie, and everyone is using it - including your non-signer - then you’re all still using Slicing Pie. This is because under English law, a pattern of behaviour can be enough to signal contractual intent.

However, every situation is different, so it’s worth talking to your non-signer to understand why they won’t sign. For example, maybe they’re hesitating about committing to the business, or they object to sharing equity dynamically but didn’t feel able to say. If so, then it’s best to find this out sooner rather than later. Then you can work out whether, e.g. they’re right for the team or you need to go back and re-negotiate equity shares. (This is another reason why we like it when people get together to sign.)

Do we need to sign this letter of intent in order to use Slicing Pie?

No - we just wanted to provide something for founders/teams that want something in writing as an interim measure, until they are ready to do their SP legals. If you all agree that you want to share equity dynamically using Slicing Pie, all you need to do is set up a pie and use it. It will then calculate your relative dynamic equity shares at any given time, and then when you’re ready, you can implement Slicing Pie legally. Under English law, a pattern of behaviour can be enough to signal contractual intent.

Is this letter binding?

Under English law, a letter of intent can be enforced by a court if the essential terms in it are certain. This letter therefore makes it extremely hard for someone who’s signed it to demand a fixed percentage of shares instead whilst the business is running Slicing Pie. If they did, then you could potentially take them to court.

However, letters of intent are not the same as formal legal agreements. In the UK, proper shareholders’ agreements, articles of association, tax elections etc are required and have to be timed and coordinated carefully, in order to give someone formal legal title to shares in a company they’re working in tax-efficiently: https://www.fairsquarellp.com/how-to-set-up-a-uk-slicing-pie-company-and-save-tax/ You'll therefore still need to do your Slicing Pie legals at some date in the future, in order to give people legal ownership to their dynamic equity shares.

Does this letter require us to set up a UK company, LLP or partnership?

No. You can decide that down the line. (Even if you already think you know what type of legal vehicle you want and/or have set one up, we recommend not saying so here. This then gives you breathing space to change your minds later, e.g. once the team’s all on board, after taking tax, legal and accounting advice etc.)

Does signing this letter create a partnership?
No. This is not - nor is it intended to be - a partnership agreement. Under English law, a common law partnership can arise automatically if certain key tests are met, including if:

• all parties intend to create a legal partnership relationship with each other, and
• the parties have embarked on their venture by spending money on it.

But no partnership arises if people are still trying to agree what legal entity they want to set up, and/or if they’re still only planning. So if, e.g. six of you are working on a project together, five want a partnership and one is still undecided, you haven’t yet formed one.

It’s obviously best if teams can decide what legal vehicle they want, rather than stumble into forming a partnership accidentally. (This does and has happened, and it can get very messy and cause all manner of problems. Common law partners also have unlimited personal liability, which isn’t great.) We’ve therefore included wording specifically to say that you aren’t partners of each other merely by virtue of signing this letter. If you all consider that you want to create an English common law partnership, then you should put in place a proper partnership agreement without delay.

Does this letter assign intellectual property (IP)?

No. This letter includes a statement of intent to assign, but not an actual assignment. This is for various reasons. First, it’s generally in each individual’s own interests to assign their IP only when they get their dynamic shares legally. And second, this ensures that value is not created in the business prematurely, which could cause tax issues to arise. (If you choose to work with us later, then we coordinate IP assignments as part of advising on your Slicing Pie legals.)

What if someone doesn’t do what they agreed to under our LOI? 

Every case turns on its facts. However, if anyone doesn’t follow through on what was agreed, then it depends on what they did - or failed to do, e.g. the business may be able to terminate them for cause - meaning they lose their time pie and any cash multipliers, and/or they may be liable to their fellow team members. 

What happens if we don’t follow through and do our Slicing Pie legals, as we agreed under our LOI?

Your team members won’t have legal title to their dynamic equity shares in the business, and won’t get any tax benefits. Depending on why you’re not doing as you agreed, you may also be liable to your fellow team members. If you later incorporate a UK company and issue shares, you could have to pay more for them on issue.

HMRC charges income tax on gains made in relation to any shares in a company where there are or were restrictions in place, so if you incorporate a company and issue shares later without putting appropriate legal arrangements, tax elections etc in place, you will each have to pay 40%+ on any share gains if/when you are able later to sell them. However, if you put in place full Slicing Pie legal arrangements at the right time, you could significantly reduce your personal tax bill to, e.g. 24% (or less if you qualify for BADR).

It is important to pay the right amount of tax as HMRC also imposes wide-ranging penalties, including fines and imprisonment, if it finds evidence of tax evasion and/or fraud.

Can we change the law and courts to a different country?

This letter is written for UK startups, so we’ve specified English law and courts as the default. If you are not a UK-based startup, then it may be better for you to consider another Slicing Pie pre-incorporation agreement instead. Our good friend, Jana Nevrlka at Cofounding.info, has a bunch of excellent ones for mainland Europe that are available here. 

Although you could technically change the law and courts to elsewhere, we strongly recommend that you take legal advice from an attorney in the country you have in mind first. Otherwise you could find that the letter is binding (or not binding) and creates legal, financial and tax problems for you and your team later in ways that you hadn’t intended. (If you don’t state any particular country, then complex rules apply to decide which law and courts have jurisdiction, which adds time and cost.) 

We are a non-UK Slicing Pie startup - can we sign it under English law anyway?

This letter is intended to be separate from any formal Slicing Pie legal agreements you may put in place, and it does not oblige a business to set itself up legally in England - so if you sign this letter under English law, you would not be required to set up in England if you decide to set up legally elsewhere. However, you would need to check: 

1. if it’s possible to implement Slicing Pie in your country: the laws in each country - particularly corporate, IP, employment and most importantly, tax - determine how Slicing Pie businesses are set up and formalised. We can give advice on the law in England and Wales, but we aren’t able to in other countries (even in jurisdictions that are physically close or share similar common law roots, like Ireland, Scotland, Gibraltar or South Africa); and 
2. what your country allows in terms of choice of law: most give parties the freedom to choose which law and courts they would like to apply to commercial contracts - but the specifics vary. You may therefore be better off taking local legal advice from an attorney in your location. If you can’t find your jurisdiction on www.slicingpie.com, then contact Prof. Mike Moyer. He may well know someone who can help (he’s always updating his page listing Slicing Pie lawyers). And if he doesn’t, he'll also be able to tell you how to instruct local lawyers so they can get their heads around Slicing Pie.

Can we use this letter if we are not in the UK?

This letter is designed for UK Slicing Pie startups. However, we’ve included wording so that you can decide to set up elsewhere if necessary, when you come to do your Slicing Pie legals. The laws in each country determine how Slicing Pie businesses are set up and formalised and if/how it can be implemented legally. We can give advice in the UK but are not able to overseas, so if you’re considering another country, consult a qualified lawyer there who is local to you. You can find lots of our Slicing Pie expert friends here:   https://slicingpie.com/slicing-pie-contracts-and-lawyers/

Can we set up in the UK even though we are not a UK startup?

The UK can be an attractive place to set up a business. However, if you are a non-UK team and/or are principally targeting a non-UK market, then it would be better to set up in a jurisdiction that is relevant to you and your business. It’s hard for any team to set up in a country that isn’t one they’re familiar with, because they need to get their heads around that country’s laws and taxes, and keep up-to-date with them. It may also not be allowed by your resident country. (Leave complex multi-jurisdictional tax wheezes until you’re nearly a unicorn.) And although taxes are a nice problem to have (because you only pay them if you’ve made money), you may have to file and report in more than one place, and even if there is a double taxation agreement, end up paying more in tax and/or accountancy fees than you bargained for. 

Can we use this letter if we’re a UK startup but some of our team members are overseas?

Yes. It's fine for anyone to join a grunt fund under Slicing Pie, and many of our UK client teams include non-UK citizens and/or taxpayers. However, you may also need to take employment, immigration and/or tax advice (we don’t provide these), e.g. if you’re planning for them to visit/move to the UK for work. Also your non-UK citizens/taxpayers may need to consult local accountants, lawyers etc, e.g.

• to see if there are any local restrictions in their home countries on owning shares in or working for a UK entity (usually not, but it’s always worth checking); and
• if they pay tax outside the UK, how they should report and pay any income tax on acquisition (and hopefully gains on sale), in which case any double tax treaty between the UK and their tax jurisdiction may be relevant.

Why do we need to fill in a form?

Mainly so we can gauge interest, and send people improvements if we update the letter. We don't use your data for any other reason. Once you fill in and submit the form, we'll send you the letter. Simple!

What format is the letter in?

The letter is a .docx file, and we’ve tested opening it in Google Docs, Open Office and Microsoft Word. Depending on which document program you use, you may need to do a bit of minor tidying up, e.g. formatting to re-align boxes.

Updates and changelog

We may update this letter from time to time, to include improvements that we think of - or others suggest. If you have suggestions, feel free to let us know, and if we think they're generally useful, we may include them in a future update (though not if they’re too specific). We’ll keep a log of changes we make here. 

Do you have a letter of intent for fixed equity shares?

No. Fixed equity shares work in a completely different way to dynamic equity. For example, fixed equity leaver provisions have to be negotiated (which can be contentious), and there is no incentive for large shareholders to wait before being issued their fixed shares - because it’s to their advantage to lock in their stakes legally before anyone tries to re-negotiate.

Fixed equity is also inflexible when it comes to new joiners, as each time someone joins, their fixed share has to be negotiated. By definition, every time a new joiner is issued shares, this dilutes the existing shareholders. It also changes the fixed shares that were in the original letter of intent. A new letter is therefore needed every time a team negotiates a new fixed equity split - which to our minds is not very efficient, though good if you want to pay lawyers! We specialise in dynamic equity, so for capacity reasons, if you want fixed equity advice, we suggest you contact a traditional law firm.