What Is a Letter of Intent (LOI)?

A letter of intent — commonly called an LOI — is a preliminary document that outlines the basic terms and conditions of a proposed business transaction or agreement before a formal contract is drafted. LOIs are widely used in business acquisitions, real estate transactions, joint ventures, and commercial leasing. While typically non-binding on the substantive deal terms, an LOI establishes a framework for negotiation and signals both parties’ serious intent to proceed.

Russo Law LLC drafts and negotiates letters of intent for buyers, sellers, and business owners throughout New York and New Jersey. A well-structured LOI protects your interests from the outset of a transaction and sets the stage for a smoother path to closing.

What Does a Letter of Intent Include?

A typical LOI in a business acquisition context covers:

Purchase price and structure — the proposed price and how the deal is structured (asset purchase vs. equity purchase, cash vs. seller financing, earnouts)
Due diligence period — the time period during which the buyer will investigate the business before committing to close
Exclusivity — a provision preventing the seller from negotiating with other buyers during the due diligence period
Confidentiality — obligations to keep deal terms and information confidential
Conditions to closing — key conditions that must be satisfied before the transaction closes
Target closing date — the anticipated timeline for completing the transaction

Is a Letter of Intent Binding?

This is one of the most important and frequently misunderstood questions about LOIs. Most LOIs are non-binding on the substantive deal terms — meaning neither party is legally obligated to complete the transaction based on the LOI alone. However, certain provisions within an LOI are typically binding, including confidentiality obligations, exclusivity provisions, and cost allocation provisions.

The binding or non-binding nature of an LOI depends entirely on how it is drafted. Poorly drafted LOIs can inadvertently create binding obligations or fail to protect the parties’ interests. This is why having an experienced business lawyer review or draft your LOI is critical before you sign.

LOIs in Business Acquisitions

In the context of buying a business or selling a business, the LOI is typically the first major document exchanged between buyer and seller. It sets the tone for the entire transaction. Key issues to negotiate at the LOI stage include:

Whether the deal is structured as an asset purchase or a stock/membership interest purchase
The scope and duration of the due diligence period
The exclusivity period and its length
Representations and warranties the seller will make at closing
Whether any portion of the purchase price will be escrowed or subject to an earnout
Whether the seller will provide any post-closing consulting or non-compete obligations

Frequently Asked Questions — Letters of Intent in New York and New Jersey

Do I need a lawyer to draft an LOI?

While LOIs are less formal than final purchase agreements, they establish the framework for the entire deal. Mistakes at the LOI stage — such as agreeing to unfavorable price terms, a short due diligence period, or missing exclusivity protection — are difficult to reverse once the document is signed. Having an experienced business lawyer draft or review your LOI before signing is one of the most cost-effective investments you can make in a transaction.

What is the difference between an LOI and a term sheet?

LOIs and term sheets serve the same purpose — outlining deal terms before a formal contract is drafted — but they differ in format and typical use. An LOI is written in letter form and is common in business acquisitions and real estate. A term sheet is typically a more concise bullet-point document and is more common in venture capital, private equity, and financing transactions. Both are generally non-binding on substantive deal terms.

How long does an LOI last?

An LOI is typically in effect until the parties either execute a definitive agreement, the exclusivity period expires, or one party withdraws. The exclusivity period in an LOI typically runs from 30 to 90 days, depending on the complexity of the transaction and the scope of due diligence required.

The information on this page is general in nature and does not constitute legal advice. Every situation involves unique facts, and no specific strategy or recommendation can be made without a full review of your circumstances.

Schedule a Free Consultation

If you are buying or selling a business in New York or New Jersey and need an LOI drafted or reviewed, call 929-262-1101 or schedule a free consultation with Russo Law LLC.