The Letter of Intent (LOI) sets the framework for the deal. It's the moment you move from browsing to negotiating, and the language in it shapes everything that follows — price, structure, exclusivity, and timeline.
What an LOI is and isn't
An LOI is a written outline of the deal's major terms — most of it non-binding. It signals serious intent without locking either side into a final agreement. A few provisions are typically binding: exclusivity (no-shop), confidentiality, and sometimes a deposit or break-fee. Read every clause and confirm with your attorney which are binding.
What goes in the LOI
A useful LOI covers price, structure (asset vs. stock), what is included and excluded, financing terms (seller note size, interest rate, term), working capital target, real estate (if any), transition support from the seller, the diligence period length, exclusivity period, and the closing timeline. Vague LOIs lead to disputes during the purchase agreement drafting.
- Purchase price and how it is paid (cash, note, rollover, earnout)
- Asset sale vs. stock sale
- Working capital target and how it's calculated
- Seller financing terms if applicable
- Real estate treatment (purchase, lease, or excluded)
- Transition / consulting period
- Exclusivity (no-shop) period — usually 60–90 days
- Confidentiality and treatment of information
- Conditions to closing (financing, lease assignment, etc.)
Binding vs. non-binding provisions
Confidentiality and exclusivity are typically binding. Price, structure, and operational terms are typically non-binding pending diligence. A well-drafted LOI states clearly which is which — a poorly drafted one creates uncertainty about what either side has actually committed to.
Exclusivity and no-shop
Sellers give buyers exclusivity so the buyer is willing to invest in diligence. Buyers want enough time (60–120 days) to complete diligence and finalize financing. If you're a buyer, push for a longer window; if you're a seller, shorter is better. Either way, the period should match the deal's complexity.
When to use an attorney
Always. The cost of an attorney reviewing an LOI before you sign is small relative to the cost of a poorly worded LOI. Most deal disputes trace back to ambiguous or missing language in the LOI.
Frequently asked
Most of it isn't, but some provisions (confidentiality, exclusivity, break-fees) typically are. Always confirm with your attorney before signing.
Yes — if diligence uncovers material issues, the buyer can renegotiate or walk. But major price changes after LOI signal either poor pre-LOI work or bad-faith negotiation.
60–90 days is standard. Larger or more complex deals (SBA-financed, regulated industries) often need 120 days.
Sometimes — especially in competitive seller's markets. Earnest money signals seriousness and can be refundable subject to diligence findings.