A letter of intent is a non-binding document that outlines the key terms a buyer proposes for acquiring a business, the starting point for negotiating the definitive purchase and sale agreement.
The LOI establishes the commercial framework: proposed purchase price, deal structure, payment terms, exclusivity period, due diligence timeline, and key conditions. It is described as non-binding, but that description requires qualification. Certain provisions, exclusivity, confidentiality, and the obligation to negotiate in good faith, are typically binding even when the economic terms are not.
The LOI is where the commercial negotiation happens. Once it is signed and exclusivity is granted, the leverage shifts significantly toward the buyer. Price renegotiations post-LOI are possible but come at a relationship cost. Sellers who accept an LOI too quickly, without fully modelling the implications of every structural term, frequently discover mid-process that the deal agreed to in principle is materially different from the deal intended.
See also: Exclusivity Clause · Purchase and Sale Agreement (PSA) · Deal StructureThe LOI is where the commercial terms of a transaction are set, and where the most important negotiating leverage exists. See how Wefinx approaches exit planning.