Letter of Intent (LOI) When Selling a Business: What It Should Contain

A letter of intent (LOI) is the document buyer and seller typically sign once they've agreed on the overall framework for a deal, but before moving on to full due diligence and the final transfer agreement. The purpose is to define what the parties genuinely agree on, before anyone spends time and money on the next, more expensive step.

Short answer: A letter of intent (LOI) describes the parties' intent regarding a deal — price, timeline and key terms — without generally being legally binding for the transfer itself. Certain parts, such as confidentiality and an exclusivity period, are typically made deliberately binding, though. It's normally signed before the final due diligence begins.

Is a letter of intent binding?

Generally, a letter of intent isn't a binding agreement on the business transfer itself — it describes the parties' intent, not a final obligation. It's therefore still possible for either party to withdraw if something material changes, or due diligence uncovers matters that change the picture. On the other hand, it's common for specific parts of a letter of intent to be made deliberately binding — typically confidentiality rules, a period of exclusivity (where the seller may not negotiate with others), and how advisor costs are split if the deal falls through.

What should a letter of intent contain?

• The parties: Who is the buyer, and who is the seller — including any companies part of the structure.
• The purpose of the agreement: A brief description of what the deal is about.
• The overall terms: Expected price or price range, and the key conditions the deal is based on.
• Timeline: Expected deadlines for due diligence, negotiation and closing.
• Confidentiality: Provisions that information exchanged along the way may not be shared with third parties — often with reference to a separate confidentiality agreement (NDA).
• Exclusivity (optional): Whether the seller commits, for a period, not to negotiate with other potential buyers.
• Indication of binding vs. non-binding parts: It should be clearly stated which parts of the document are legally binding, and which merely describe an intent.
• Signatures: As confirmation that both parties agree to what's described.

What happens after the LOI is signed?

Once the letter of intent is in place, the parties typically move on to due diligence, where the buyer examines the business's affairs in detail. If due diligence reveals nothing serious, the final, legally binding transfer agreement is drawn up based on the terms agreed in the LOI.

Why is it important to get it right from the start?

A letter of intent that's too loose leaves room for misunderstandings later in the process. A letter of intent that's too tight or unclear about what's actually binding can, conversely, bind you to terms you didn't intend to commit to. Getting the balance right typically requires legal insight — particularly regarding which parts should be made binding, and which should deliberately be left open.

Frequently asked questions

Can I change my mind after signing a letter of intent?

Yes, generally you can withdraw from the deal itself, since the LOI is normally not binding for the transfer. The parts deliberately made binding — e.g. confidentiality or exclusivity — you'll still be bound by, though.

How long does it typically take from LOI to the final agreement?

It depends on the deal's complexity, but typically 4–8 weeks, while due diligence is carried out. See our general guide to how long a business sale takes.

Should I have a lawyer review the letter of intent?

It's recommended, particularly because this is where you determine which parts of the agreement are binding. An unclear formulation here can have consequences later in the negotiation.

What's the difference between a letter of intent and the final transfer agreement?

The letter of intent describes the overall terms and the intent to complete a deal, while the transfer agreement is the final, legally binding document that formally transfers the business.

Need to negotiate and draft a letter of intent in connection with a sale? Under the Advisory & Mediation package, you get access to our lawyer network and help with the negotiation, so the key terms are in place before you move on to due diligence.