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Preliminary Agreement
"I need a preliminary agreement for a merger valued at $50 million, outlining due diligence responsibilities, confidentiality terms, and a 90-day exclusivity period with a termination clause for unmet conditions."
What is a Preliminary Agreement?
A Preliminary Agreement serves as the initial handshake between parties who plan to enter a more detailed contract later. In Philippine business practice, it outlines the key terms both sides agree to while they work out the finer details of their final agreement.
These agreements help protect both parties during negotiations by documenting their basic commitments, timelines, and confidentiality requirements. Under Philippine contract law, even these initial agreements can be legally binding if they contain all essential terms, though most parties use them as stepping stones toward a comprehensive final contract. Common in real estate deals, joint ventures, and major business transactions across Metro Manila and beyond.
When should you use a Preliminary Agreement?
Use a Preliminary Agreement when starting complex business negotiations that need structure and security before finalizing all details. This document proves especially valuable in Philippine real estate developments, corporate mergers, and major supplier contracts where parties need to lock in basic terms while working through complex specifics.
The timing is crucial - implement it early in discussions when both parties have agreed on key points but need more time for due diligence, regulatory approvals, or detailed negotiations. It helps prevent misunderstandings, protects confidential information shared during talks, and creates clear timelines for completing the final deal. Many Filipino businesses use these agreements during joint venture formations and property acquisitions.
What are the different types of Preliminary Agreement?
- Preliminary Share Purchase Agreement: Used for corporate stock transactions, outlining initial terms for share transfers and company ownership changes
- Preliminary Agreement For Sale And Purchase: A comprehensive format covering both buying and selling aspects, common in complex commercial deals
- Preliminary Sale Agreement: Focused on seller obligations and property transfers, typically used in real estate transactions
- Preliminary Purchase Agreement: Emphasizes buyer commitments and payment terms, popular in asset acquisitions
- Preliminary Sale Contract: More formal version with detailed conditions and warranties, often used in high-value transactions
Who should typically use a Preliminary Agreement?
- Business Executives: CEOs, CFOs, and other corporate officers who initiate and approve the preliminary terms during major business transactions
- Real Estate Developers: Use these agreements to secure initial commitments for land acquisition and development projects across the Philippines
- Corporate Lawyers: Draft and review the agreements to ensure compliance with Philippine law and protect their clients' interests
- Investment Bankers: Facilitate deals using Preliminary Agreements during mergers, acquisitions, and major financing transactions
- Business Owners: Small to medium enterprise owners who need to document initial terms before finalizing major business deals
How do you write a Preliminary Agreement?
- Basic Details: Gather complete legal names, addresses, and contact information of all parties involved in the transaction
- Deal Terms: List key business points, including price, payment terms, and timelines agreed upon during initial discussions
- Subject Matter: Document clear descriptions of assets, shares, or properties involved in the transaction
- Due Diligence: Outline what documents and information each party must provide during the negotiation period
- Timeline Planning: Set realistic deadlines for completing due diligence, obtaining approvals, and signing the final agreement
- Confidentiality Needs: Identify sensitive information that requires protection during negotiations
What should be included in a Preliminary Agreement?
- Party Details: Full legal names, addresses, and authorized representatives of all involved parties
- Subject Matter: Clear description of the transaction scope, assets, or business arrangement being discussed
- Key Terms: Essential business points, pricing, payment terms, and timeline commitments
- Confidentiality Clause: Terms protecting sensitive information shared during negotiations
- Duration: Clear validity period and deadlines for finalizing the definitive agreement
- Binding Elements: Specific mention of which provisions are legally binding under Philippine law
- Signature Block: Proper execution sections with witness requirements per Philippine regulations
What's the difference between a Preliminary Agreement and a Business Acquisition Agreement?
A Preliminary Agreement differs significantly from a Business Acquisition Agreement in several key aspects, though both play important roles in Philippine business transactions. While a Preliminary Agreement sets initial terms and creates a framework for future negotiations, a Business Acquisition Agreement represents the final, comprehensive deal.
- Timing and Purpose: Preliminary Agreements come first, outlining basic terms and commitments while negotiations continue. Business Acquisition Agreements represent the final, detailed transaction terms
- Level of Detail: Preliminary Agreements contain basic terms and general commitments, while Business Acquisition Agreements include complete operational details, warranties, and specific obligations
- Legal Binding Effect: Preliminary Agreements may have limited binding elements, mainly confidentiality and exclusivity. Business Acquisition Agreements are fully binding and enforceable
- Due Diligence Stage: Preliminary Agreements often precede due diligence, while Business Acquisition Agreements are signed after completing all investigations and verifications
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