The letter of intent, also known as a LOI, is usually the first document in a business sale, and it is routinely treated as a casual handshake. It is not. A poorly written LOI can bind you to terms you thought were still open, and it sets the deal on a path that is hard to change later. The LOI quietly shapes the whole transaction.
Mostly non-binding, with binding exceptions
The heart of an LOI, meaning price, structure, and the key business terms, is usually stated to be non-binding, an agreement to keep negotiating toward a definitive contract. But almost every LOI also contains provisions that are binding the moment it is signed, and those are the ones to read closely.
The binding parts that matter
- Exclusivity, or no-shop. The seller agrees not to talk to other buyers for a set period. This is enforceable and it hands the buyer leverage, so watch the length.
- Confidentiality. Often binding, or tied to a separate nondisclosure agreement.
- Expense and break-up provisions. Who pays costs, and any fee if a party walks away.
- Governing law, and sometimes a standstill.
Why the non-binding terms still matter
Even the non-binding business terms set anchors. It is far harder to move price or shift risk after both sides have signed an LOI and told their teams the deal is done. As a rule, what you concede in the LOI you end up living with, so the LOI is a real negotiation, not a formality.
Watch for accidental bindingness
An LOI that is too detailed, or that uses mandatory language, can be found partly enforceable even where the parties meant it to be non-binding. Say clearly which parts bind and which do not, and then behave consistently with that label while you negotiate the definitive agreement.
What to do
- Treat the LOI as a real negotiation; the anchors you set here are hard to move later.
- Separate the binding provisions from the non-binding ones, in plain language.
- Negotiate the exclusivity period and any break-up or expense terms, because those bind immediately.
- Do not over-specify terms you want to keep open, and act consistently with the non-binding label.
A good LOI gets the deal moving without giving away leverage. Read it as the first page of the contract, because in practice that is what it is.
If you have questions about a letter of intent or the sale of a business, or any other services, you can reach Martin at martinkreshon.com, northcitylaw.com, or call (206) 929-0609. You can also find reviews for Martin on Google and Avvo.