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Letter of Intent: The First Step Toward Sealing a Deal

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Letter of Intent

The First Step Toward Sealing a Deal

"Before the handshake turns into a contract, comes this document..."

What is an LOI?

A Letter of Intent is a non-binding document used before formal agreements ā€” like share/asset purchases.

While most parts of the LOI aren't legally binding, a few sections are. such as keeping information confidential, agreeing not to talk to other potential buyers or sellers for a certain time, and deciding which country's laws will apply.

It outlines terms, intentions, and protects both sides while negotiations begin.

Some parts are legally binding ā€” especially confidentiality & exclusivity.

The crucial pointer of letter of intent are:

1) Transaction Overview & Deal Structure: Buyer gives an overview of the deal:

  • Asset Purchase or Stock Purchase?
  • Estimated price or valuation multiple
  • How will the deal be financed?

2) Timeline:

  • LOI āž” Due Diligence āž” Definitive Agreement
  • Typical timeline: Weeks to months
  • Key steps: Review, legal documentation, final offer.

3) Due Diligence:

šŸ” Post-LOI, the buyer does a deep dive into the business:

  • Financials
  • Operations
  • Legal & compliance

This helps refine pricing and make an informed final decision.

4) Confidentiality:

  • Both parties agree to keep shared information strictly private.
  • No leaks.
  • No exposure. Trust is built here.

5) Exclusivity:

  • Seller won't engage other buyers for a certain time.
  • Protects the buyer's time, effort & negotiation capital.
  • If another offer comes in ā€” rules for disclosure & matching are clearly defined.

6) Non-Binding ā€” But With Boundaries:

  • LOI ā‰  Legal obligation to close the deal
  • BUT: Confidentiality & Exclusivity are binding

šŸ’” Think of LOI as a commitment to explore, not a contract to execute.

Common Mistakes to Avoid:

āš  Don't mess this up:

  • Accidentally Binding Language: Words like "shall/will" make it legally risky ā€” use "may/should/could".
  • No Exclusivity Clause: You could waste time if seller shops the deal elsewhere.
  • Weak Confidentiality: Leaks damage trust & IP. Always include strong protection.
  • Unrealistic Timelines: Be credible. Plan practical durations for each phase.
  • No Next Steps: Define what happens after LOI ā€” call, draft review, legal prep, etc.

An LOI is not just a formality ā€” it's your blueprint for deal-making.

Use it wisely. Draft it carefully. Review it legally.

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