A letter of intent arrives and your first instinct is to call an attorney. That instinct is right — but there are things you should do before that call. Understanding what an LOI actually contains, what is binding versus non-binding, and what questions to ask puts you in a far stronger position when your attorney sits down to review it.
What Is a Letter of Intent in a Business Sale?
A letter of intent — LOI — is the document a buyer issues when they want to acquire your company. It functions like an engagement ring. Both parties are saying they want to move forward, but the final deal is not yet closed. The LOI outlines the structure of the transaction: the purchase price, the terms under which money changes hands, any holdbacks or reps and warranties, and whether the document itself is binding or non-binding.
Most LOIs contain seven to ten key provisions. They are written in legal language — the kind with commas that matter and words that shift meaning depending on where they land in a sentence. That is exactly why review matters.
What Are the Key Provisions Inside Most LOIs?
While every deal is different, most letters of intent include the following:
- Purchase price and payment structure — how much, in what form, and on what timeline
- Representations and warranties — statements you are making about the business that the buyer is relying on
- Holdback provisions — money the buyer retains post-close to cover any inaccuracies in your reps and warranties
- Non-disclosure agreement — both parties agree to keep the deal and its terms private
- Binding vs. non-binding language — which sections create legal obligations and which do not
- Governing jurisdiction — the state whose laws govern the document, which matters significantly if you operate in a different state
- Exclusivity period — whether you are locked out of talking to other buyers while the deal is in diligence
Should the LOI Be Binding or Non-Binding?
This distinction carries real consequences. A binding LOI creates legal obligations the moment both parties sign. A non-binding LOI signals intent without locking either side in — either party can walk away if the deal does not move forward to their satisfaction.
Most LOIs are partially binding. The confidentiality and exclusivity sections tend to be binding while the purchase price and deal structure remain non-binding until the definitive purchase agreement is signed. Your attorney will tell you exactly which provisions carry legal weight in your specific document.
What Should You Do Before Sending the LOI to an Attorney?
Read it yourself first. You know your business better than any attorney will on a first read. Go through the document and flag every provision you do not understand. Write down your questions. Look up basic definitions. Use an AI tool if it helps you get oriented.
You can also ask a trusted entrepreneur friend to read it — someone who has been through a deal before and is bound by your NDA. They may catch business-level issues your attorney would miss because attorneys are trained to read legal language, not always to understand how a specific business operates.
Once you have your questions in hand, then sit down with your attorney. That half hour of their time — the $200 to $600 it costs — is worth every dollar when it catches a provision that could cost you significantly more at close.
Why Jurisdiction Matters More Than Most Sellers Realize
The governing jurisdiction clause in your LOI determines which state’s laws control the document. If your LLC is incorporated in Wyoming and the buyer is based in Delaware, but you operate in California, the gap between those legal environments is not trivial. California law operates differently from Wyoming law in ways that affect enforceability, dispute resolution, and seller protections.
Do not overlook this clause. Flag it, understand it, and make sure your attorney has reviewed what it means for your specific situation before you sign anything.
When Attorneys Go Too Far in the LOI Stage
An LOI is not the place to fight every battle. Some attorneys — particularly those who have not worked extensively on M&A transactions — will want to redline everything. A three-page LOI becomes twenty pages. The buyer gets frustrated. Deal momentum dies.
The LOI is the engagement. The purchase agreement is the wedding. Save your detailed negotiations for the document that actually closes the deal. Pick your fights at the LOI stage carefully, and make sure your attorney understands the pace and culture of M&A transactions before they start marking up every line.
The Bottom Line on LOI Review
Yes — have an attorney review your LOI before you sign. That is not negotiable. But go in prepared. Read the document yourself, identify the provisions that concern you, understand the binding versus non-binding language, and know what questions you need answered. You will get more value from the attorney’s time and you will protect your position more effectively.
If you are selling a business with $2 million or more in annual revenue and want to understand where your deal stands before an LOI ever arrives, reach out to the deal hotline at 888-DEAL-919. A member of the team will get back to you.