Key Takeaways: A letter of intent (LOI) is a document that outlines the preliminary terms of a deal before a binding contract is drafted. It signals serious intent, sets expectations, and accelerates negotiations. Most LOIs are non-binding, but some clauses (like confidentiality) are typically enforceable. This guide covers when to use an LOI, what to include, and how to sign it electronically.
A letter of intent (LOI) — also called a memorandum of understanding (MOU) or term sheet — is a written document that outlines the key terms of a proposed deal before the parties negotiate a final, binding contract.
Think of it as a handshake in writing. It says: "We're both serious about this deal, and here's what we've roughly agreed to. Now let's work out the details."
LOIs are commonly used in:
Business acquisitions and mergers — the buyer outlines proposed purchase terms
Real estate transactions — purchase price, contingencies, closing timeline
Business partnerships — roles, equity splits, contribution commitments
Job offers — salary, start date, benefits outline before the formal employment agreement
Most LOIs are intentionally non-binding — they outline proposed terms without creating legal obligations. However:
Certain clauses can be binding even in a non-binding LOI. These typically include:
Confidentiality — both parties agree not to disclose deal terms
Exclusivity (no-shop clause) — the seller agrees not to negotiate with other parties for a specified period
Expenses — each party bears their own costs
Governing law — which jurisdiction's laws apply to the LOI itself
An LOI can become binding if it's written without clear non-binding language. If the LOI says "the parties agree to..." without explicitly stating it's non-binding, a court could interpret it as a contract.
Best practice: Include an explicit statement: "This Letter of Intent is non-binding and does not create any legal obligation to enter into a definitive agreement, except for the provisions of Sections [X] (Confidentiality) and [Y] (Exclusivity), which are binding."
How to Write a Letter of Intent: Section by Section#
This Letter of Intent ("LOI") outlines the proposed terms under which [Buyer/Partner/Employer] intends to [acquire/partner with/employ] [Seller/Partner/Candidate]. This LOI is intended to serve as a basis for negotiation of a definitive agreement.
[Buyer] proposes to acquire 100% of the outstanding equity interests of [Target Company] for a total consideration of $[Amount], subject to customary due diligence and the negotiation of a definitive purchase agreement.
Buyer shall have [30/60/90] days from the date of this LOI to conduct due diligence, including review of financial statements, contracts, intellectual property, employment records, and any other materials reasonably requested. Seller agrees to provide timely access to all requested information.
Both parties agree to maintain the confidentiality of the transaction, the terms of this LOI, and all information shared during due diligence. This obligation survives termination of this LOI for a period of [2] years.
For a period of [60] days from the date of this LOI, Seller agrees not to solicit, negotiate, or enter into discussions with any third party regarding a sale, merger, or similar transaction involving the Company.
Except for the provisions regarding Confidentiality (Section 5) and Exclusivity (Section 6), this LOI is non-binding and does not constitute a commitment by either party to enter into a definitive agreement. Either party may terminate discussions at any time without liability.
This LOI shall expire if not accepted by [Date]. Acceptance is indicated by the counter-signature of an authorized representative of [receiving party].