What Is a Letter of Intent?

The serious-intent document that frames a deal before the real agreement — what belongs in it, and which parts can still bind you.

Gyanendra Singh·Advocate·High Court of Madhya Pradesh, Jabalpur

What Does Letter of Intent Mean?

A letter of intent (LOI) is a written statement — usually short — recording that two parties intend to transact on outlined terms, before the definitive agreement is negotiated. In acquisitions it fixes headline economics: price or valuation range, structure, exclusivity period, and the timetable to definitive documents.

The LOI's purpose is alignment and momentum: it stops parallel negotiations, sets expectations, and surfaces deal-breakers early — while expressly deferring the heavy drafting.

CONTENTS

What a Deal LOI Typically Records

Transaction structure — share purchase, asset purchase, primary investment.
Price or valuation basis, with adjustment mechanics flagged for definitive documentation.
Exclusivity window — the seller negotiating only with this buyer for a stated period.
Timetable: diligence start, definitive agreement target, expected closing.
Key conditions expected at closing, described at headline level only.
Binding provisions list and governing law for those provisions.
Publicity restrictions — no announcements without mutual consent.

BINDING

The Binding Skeleton Inside a Non-Binding Letter

Well-drafted LOIs declare the commercial terms non-binding while expressly binding a short list — and this skeleton is where real obligations live:

Exclusivity — breaching it by negotiating with another buyer during the window invites real damages claims.
Confidentiality — information exchanged under the LOI stays protected, often via incorporated NDA terms.
Costs — each side bears its own negotiation expenses.
Governing law and dispute forum for the binding provisions themselves.
Termination — how and when the LOI expires or may be withdrawn.

Reading discipline: courts enforce what documents say over what parties assumed. Before signing an LOI, read the binding-provisions clause first — everything else is intention, this is obligation.

FAMILY

LOI, Term Sheet, MOU — Same Family, Different Postures

Letter of intent: letter format, deal-specific path to definitive documents; standard in acquisitions.
Term sheet: functionally identical, often tabular or bullet format; venture financings prefer the label.
Memorandum of understanding: broader collaborations and frameworks beyond a single transaction.
Enforceability analysis treats all three alike: substance and express binding clauses decide, headings never do.

The phase the LOI's exclusivity window protects.

Shareholders’ Agreement

The definitive document investment LOIs anticipate.

Startup Legal Services

Practice area covering term sheets and closings.

FAQ

Letters of Intent: Common Questions

1. If the LOI says non-binding, can I just walk away?

From the commercial terms, generally yes. From the binding skeleton — exclusivity, confidentiality, costs — no. Walking away mid-exclusivity to close with a different buyer is precisely the scenario that produces enforceable claims.

2. How long should exclusivity run?

Long enough to complete diligence and definitive drafting on the stated timetable — commonly thirty to ninety days — with extensions only by written consent. Sellers should resist open-ended windows that freeze the asset without commitment.

3. Can price in the LOI be renegotiated later?

Yes when the LOI is non-binding — diligence findings legitimately move price. What cannot happen quietly is using the non-binding label to retrade after full performance was anticipated; conduct and good-faith framing colour such disputes.

4. Should employees and customers be told at LOI stage?

Only per the publicity clause — typically mutual consent for any announcement. Premature disclosure risks value, triggers consent-clause breaches in customer contracts, and is a recurring source of post-LOI friction.

5. Is a signed LOI needed before diligence opens?

Standard practice pairs them: confidentiality terms first, then data-room access. Some sellers open diligence on NDA alone and defer LOIs; buyers pushing LOIs early are usually seeking exclusivity before spending on diligence.

6. The other side signed but now delays everything indefinitely. Remedies?

Check the termination clause — most LOIs expire on the timetable or on notice. Beyond that, remedies are thin by design unless conduct crossed into binding-provision breach; the LOI's real protection was always your right to walk away too.

LOI on the Table — Signer Beware?

Exclusivity and confidentiality bite before any definitive agreement exists. Get the skeleton reviewed first.

Contact Gyanendra Singh →

Disclaimer: This explanation covers letters of intent in general terms and is not legal advice. Enforceability turns on wording and facts; consult a qualified advocate about your matter.