What is Inchoate?
Inchoate is a legal term indicating that a transaction or activity has been discussed or even agreed upon but is not final or is still incomplete.
How Does Inchoate Work?
Let's say Company XYZ wants to buy Company ABC. The two companies agree to the price and other terms, and now it's a matter of time until the paperwork is completed, making the transaction final. During that time -- that is, after the companies agree but before the transaction is finalized -- the deal is inchoate.
Why Does Inchoate Matter?
In the merger world, lots of time can pass between when a deal is announced and when it closes. During this time, the deals are inchoate and can often experience several bumps in the road as the companies do their due diligence on each other and implement the terms of the deal.
Real estate deals are also often inchoate and transactions can often fall apart before they reach the closing table.