Letter of Intent (LOI)
A preliminary outline of the key deal terms before definitive documents are drafted.
01
What It Means
A letter of intent summarizes the essential terms of a proposed transaction — price, structure, assets included, financing contingencies, due diligence period, exclusivity, confidentiality, and target closing date — before attorneys prepare the definitive agreement.
Most terms in an LOI are non-binding, but certain provisions such as confidentiality, exclusivity, and expense allocation are commonly drafted to be binding. The document should say clearly which is which.
02
Why It Matters
It aligns expectations early, before either side spends significant money on legal work, accounting review, or lender underwriting.
It frames the negotiation that follows. Terms accepted in an LOI are difficult to reopen later, even where technically non-binding.
Ambiguity about what is binding is a common source of disputes, which is why attorney review before signing is worthwhile.
03
Common Misconceptions
- "An LOI is just a formality." It shapes price, timeline, and leverage for the rest of the transaction.
- "Nothing in an LOI is binding." Exclusivity, confidentiality, and expense provisions frequently are.
- "Signing an LOI means the deal is done." Due diligence and financing still have to be satisfied.
- "Details can be left vague and sorted out later." Vagueness tends to resurface as a renegotiation.
04
Questions to Ask
- Which provisions are binding, and which are not?
- How long is the exclusivity period, and what does it prevent?
- What is the due diligence timeline, and what access does it include?
- What conditions must be satisfied before closing?
- What happens to earnest money or deposits if the transaction ends?
05
Related Reading & Resources
The most successful real estate decisions often involve collaboration between several professionals working toward the same goal. Understanding each person's role helps you ask better questions and make more confident decisions.
06
Other Business Sale Terms
- Asset SaleThe buyer purchases specific business assets rather than the legal entity that owns them.
- Stock SaleThe buyer purchases the ownership interest in the entity, and the business continues intact.
- GoodwillThe intangible value of a business beyond its tangible assets — reputation, customers, and earning capacity.
- EBITDAEarnings before interest, taxes, depreciation, and amortization — a common starting point for valuing a business.
- Seller FinancingThe seller carries part of the purchase price as a note, and the buyer repays over time.
- Non-Compete AgreementA negotiated limit on the seller competing against the business they just sold.
Thinking About Buying or Selling a Business?
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