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. Learn more in Exit Ratio 360™.
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.
What is a letter of intent in a business sale?
A letter of intent (LOI) is a document issued by a buyer to signal their intent to acquire a company. It outlines the proposed purchase price, payment terms, holdback provisions, confidentiality requirements, and whether the document is binding or non-binding. It functions as an engagement — both parties agree to move forward, but the deal is not yet closed.
Do I need an attorney to review my LOI?
Yes. An LOI contains legal provisions written in attorney language where commas and specific word placement carry legal weight. Some sections may be binding the moment you sign. Having an attorney review the document before you sign protects you from provisions that could create obligations or limit your options during the deal. But go in prepared — read it yourself first, flag every provision you do not understand, and arrive with specific questions.
Do I need an attorney to review my LOI?
Yes. An LOI contains legal provisions written in attorney language where commas and specific word placement carry legal weight. Some sections may be binding the moment you sign. Having an attorney review the document before you sign protects you from provisions that could create obligations or limit your options during the deal.
What Are the Key Provisions Inside Most LOIs?
Most LOIs contain seven to ten key provisions including purchase price and payment structure, representations and warranties, holdback provisions, non-disclosure requirements, binding versus non-binding language, the governing jurisdiction, and an exclusivity period preventing the seller from talking to other buyers during diligence.
What are the key provisions in a letter of intent?
Most LOIs contain seven to ten provisions including purchase price and payment structure, representations and warranties, holdback amounts, non-disclosure requirements, binding versus non-binding language, the governing jurisdiction, and an exclusivity period preventing the seller from talking to other buyers during diligence.
Should the LOI Be Binding or Non-Binding?
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 is the difference between a binding and non-binding LOI?
A binding LOI creates legal obligations when signed. A non-binding LOI signals intent without locking either party in. Most LOIs are partially binding — confidentiality and exclusivity provisions typically carry legal force while purchase price and deal structure remain non-binding until the definitive purchase agreement is executed.
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.
Why does jurisdiction matter in a letter of intent?
The governing jurisdiction clause determines which state’s laws control the LOI. If your LLC is incorporated in Wyoming but you operate in California and the buyer is in Delaware, the legal gap between those environments affects enforceability, seller protections, and dispute resolution. Review this clause with your attorney before signing.
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. See also: Can You Extend an LOI.
Can an attorney ruin a deal by over-negotiating the LOI?
Yes. Attorneys who are not experienced in M&A transactions sometimes redline every provision in an LOI, turning a three-page document into twenty pages. This frustrates buyers and kills deal momentum. The LOI is not the place to fight every battle — save detailed negotiations for the definitive purchase agreement. Choose your LOI attorney carefully.
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.
Related: Can You Extend an LOI | Titan Thesis | 5-4-3-2 Framework | Exit Ratio 360™ on Amazon
About Scott Sylvan Bell
Scott Sylvan Bell is a mid-market exit strategy consultant and the creator of the Exit Ratio 360™. His book is available on Amazon.