This guide provides general educational information—not legal, tax, accounting, financial, or investment advice. Confirm material decisions with qualified professionals.
Purpose of an LOI
A letter of intent records the parties’ current understanding before they invest heavily in diligence and definitive documents. It can surface disagreements about economics, structure, timing, and access early, but it is not a substitute for a purchase agreement.
Terms commonly addressed
An LOI may cover price, asset or equity structure, included and excluded items, working capital, financing assumptions, seller notes or earnouts, transition support, due-diligence access, closing conditions, target dates, and responsibility for expenses.
Binding and nonbinding provisions
Some provisions may be expressly binding even when the proposed acquisition is not. Confidentiality, exclusivity, access, expenses, governing law, and publicity are common examples. Labels alone may not resolve every legal question, so obtain transaction counsel before signing.
Avoid false precision
State assumptions behind the price, including the earnings period, cash and debt treatment, inventory, working capital, and expected transaction form. If a material fact remains unknown, identify it as a diligence item or condition rather than silently assuming the best outcome.
Prepare for the next phase
Attach or promptly issue a prioritized diligence request list, establish a secure document process, assign advisers, and agree on communication. Exclusivity time should match the work realistically required.
Primary sources and further reading
Always confirm current requirements directly with the relevant agency, lender, or professional.