The Letter of Intent (LOI) is a non-binding agreement that is provided to the Seller, from the Buyer (or their lawyer). An LOI essentially lays out the intent of both parties. The Seller lays out the proposed terms they are willing to sell the business for, and the Buyer indicates what they are willing to pay.

The LOI is a crucial step in any acquisition process, as it lays out the essential components of the final deal. This includes key points such as the purchase price and terms, the expected closing date, a specified period of exclusivity, conditions precedent, restrictive covenants, representations and warranties, and indemnities. Although the LOI is not legally binding, certain clauses such as confidentiality, exclusivity, expenses and governing law, are an exception to this.

The LOI outlines the detailed information that is required for either of the parties to make an informed decision about the deal. It may also be used to provide the Buyer with the ‘right of first refusal’, which prevents the Seller from reaching a deal with another entity before it reaches such an agreement with the Buyer.

While setting the stage for a potential final agreement, the LOI also signals the start of the formal due diligence phase for the Buyer. The Seller provides the Buyer with financial accounts and other important company documents, such as detailed information on customers, to allow the Buyer to verify that what has been stated about the business is accurate.

The precise structure of an LOI varies depending on the exact nature of business deal that is involved, but it will often include a number of sections that outline the proposed deal in basic terms. Below is a list of commonly included sections.

1. Introduction
2. Disclosure/Identification of Parties
3. Transaction and Timing
4. Contingencies
5. Due Diligence
6. Covenants/Binding Agreements