Letter of transmittal: Overview, definition, and example
What is a letter of transmittal?
A letter of transmittal is a formal document used to accompany and deliver other documents, securities, or physical items in a transaction—often in corporate or financial contexts. It typically outlines what is being sent, the purpose of the delivery, and any actions the recipient is expected to take. In mergers, tender offers, or stock redemptions, shareholders often use a letter of transmittal to return share certificates and confirm acceptance of terms.
Why is a letter of transmittal important?
A letter of transmittal is important because it creates a clear and official record of the exchange of documents or assets. It provides key instructions and ensures that all parties understand what’s being transferred and why. In corporate actions like mergers or tender offers, it helps facilitate the smooth transfer of securities and ensures shareholders receive payment or replacement shares in return. It also serves as evidence that the sender fulfilled their part of the transaction.
Understanding a letter of transmittal through an example
In a merger, shareholders may be asked to surrender their existing stock certificates in exchange for payment. The company will issue a letter of transmittal, which the shareholders must fill out and return along with their certificates. This document confirms ownership, instructs the transfer agent on how to issue payment, and includes certifications (such as tax ID information or legal ownership status).
Example of how a letter of transmittal may be referenced in a contract
Here’s how a letter of transmittal may be mentioned in a merger agreement:
"Each holder of Company Common Stock shall, upon surrender of their certificates to the Exchange Agent with a duly executed Letter of Transmittal, be entitled to receive the Merger Consideration payable under this Agreement."
Conclusion
A letter of transmittal is a key administrative document that supports the smooth and orderly transfer of securities or other materials in business transactions. It confirms what’s being sent, outlines the sender’s instructions, and often includes important certifications. Whether used in mergers, redemptions, or exchanges, it helps ensure clarity, compliance, and proper execution of the transaction.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.