Letter of intent builder

Template only - not legal advice. Whether specific LOI provisions are binding or non-binding has real legal consequences, and unclear language can create unintended obligations. Have a business attorney review this document before sending or signing. See our full disclaimer.

1. Parties and deal type

Buyer name

Seller name

Letter date

Deal structure

Brief description of the target business

2. Purchase price and structure

Proposed purchase price ($)

Payment structure

Payment structure details (if applicable)

3. Exclusivity and timeline

Exclusivity period (days) Period during which Seller won't negotiate with other buyers.

Due diligence period (days)

Target closing date

4. Additional deal terms

Seller non-compete expected?

Key employee retention required?

Key closing conditions (comma-separated)

Your letter of intent

Get a business attorney for your deal

A business attorney reviews your LOI to confirm the binding/non-binding language accurately reflects your intent, and leads negotiation of the definitive purchase agreement.

Is a letter of intent legally binding?

Generally, most of an LOI's substantive deal terms (price, structure, key conditions) are intentionally non-binding - meant to reflect a mutual understanding while the parties complete due diligence and negotiate a definitive purchase agreement. However, certain provisions are typically binding regardless: confidentiality obligations, the exclusivity commitment, and often a provision covering allocation of transaction costs if the deal falls through.

The critical risk is ambiguity - an LOI that doesn't clearly distinguish binding from non-binding provisions can create unintended legal obligations, or conversely, fail to create the exclusivity protection a buyer actually needs during the diligence period. Every LOI should explicitly state which sections are binding and which are not.

Once your LOI is signed, move to the business acquisition checklist to begin formal due diligence during the exclusivity period.

Why does the exclusivity clause matter so much to buyers?

Due diligence and deal preparation require significant time and expense - buyers reasonably want assurance the seller won't simultaneously negotiate with other potential buyers (sometimes called "shopping" the deal) while the buyer is investing resources into the transaction. An exclusivity period (commonly 30 to 90 days) gives the buyer this protection.

From the seller's perspective, a long exclusivity period ties up the business and delays the ability to pursue alternative buyers if the deal falls through, so sellers often negotiate for a shorter period or specific milestones the buyer must hit to maintain exclusivity. Balancing this tension is a routine part of LOI negotiation.

What's the difference between an LOI and a term sheet?

The terms are often used interchangeably, though "letter of intent" typically implies a more formal, narrative document, while "term sheet" often refers to a more structured, bullet-point summary of key terms - common in venture capital and private equity transactions. Functionally, both serve the same purpose: establishing a preliminary framework before a definitive agreement is drafted, with similar binding/non-binding considerations applying to either format. Our business acquisition checklist and NDA generator cover related steps in a business transaction.

Frequently asked questions

Generally yes, for the non-binding deal terms - either party can walk away if due diligence reveals problems, financing falls through, or the parties simply can't agree on definitive agreement terms. However, walking away doesn't excuse breach of the binding provisions (confidentiality, exclusivity commitments during their stated period). Some LOIs also include a "good faith negotiation" obligation, which doesn't guarantee a deal will close but does create some obligation to negotiate the definitive agreement in good faith rather than using the LOI process merely as a pretext for something else, like gathering competitive intelligence.

The LOI should specify what happens if the exclusivity period expires before the deal closes - some LOIs include an automatic extension provision (renewing exclusivity for a defined additional period unless either party objects), while others require an affirmative written agreement to extend. Without addressing this, the exclusivity protection simply ends on the stated date, potentially exposing the buyer to competing offers if diligence or negotiation of the definitive agreement takes longer than anticipated, which happens more often than parties initially expect.

Either approach is common, and the choice often depends on how much diligence has already occurred before the LOI is signed. A fixed price provides clarity and demonstrates serious commitment, but since the price is typically non-binding anyway, it's understood to be subject to adjustment based on due diligence findings. Some LOIs use a price range or explicitly note the price is subject to a working capital adjustment or other post-diligence modification, which can better set expectations that the final number may shift once diligence uncovers the actual financial condition of the business.

Attorney involvement at the LOI stage is valuable, even though the document is largely non-binding. Getting the binding provisions (exclusivity, confidentiality, cost allocation) correctly drafted matters, and setting appropriate expectations in the LOI about deal structure and key conditions makes the definitive agreement negotiation smoother and less likely to surface fundamental disagreements late in the process, after significant diligence costs have already been incurred by both sides.

A MAC clause allows the buyer to walk away (or renegotiate) if something significantly and negatively affects the target business between signing the LOI and closing - a major customer loss, a lawsuit, a key employee departure, or broader economic disruption affecting the business. This clause protects buyers against the risk that the business they're agreeing to buy changes meaningfully during the diligence and closing process, though the exact definition of what counts as "material" is often heavily negotiated and can become a point of dispute if invoked.