Letter of Intent to Buy a Business
A business acquisition letter of intent should summarize the proposed price, asset or equity structure, payment terms, working-capital treatment, financing, diligence access, exclusivity, confidentiality, employee and transition expectations, major closing conditions and target timing. Counsel should identify which provisions are binding and draft language appropriate to the transaction.
Define price and consideration
- State the headline price and separate cash at closing, assumed obligations, seller financing, earnouts, holdbacks and retained equity.
- Explain whether the price assumes a target level of cash, debt, inventory or working capital.
- Avoid using the same number to describe both enterprise value and seller proceeds.
Choose the transaction structure
- Identify whether the proposal contemplates an asset purchase, equity purchase, merger or another structure.
- List important included and excluded assets or liabilities.
- Note required consents, assignments, licenses and third-party approvals.
Set the path to closing
- Define diligence scope and access, financing condition, exclusivity period, confidentiality, definitive-document process and target closing date.
- Identify material conditions such as landlord consent, key-contract assignment, licensing or satisfactory employment arrangements.
- Use a responsibility list so open items have owners and dates.
Control legal effect
- The LOI should clearly distinguish binding provisions from nonbinding business terms.
- Confidentiality, exclusivity, expenses, access, publicity, governing law and termination may receive different treatment.
- Both parties should use qualified counsel; this checklist is not a form agreement.
Decision checklist
Frequently asked questions
Is an LOI legally binding?
Some provisions may be binding while the proposed acquisition terms are often stated as nonbinding. Wording and jurisdiction matter, so counsel should draft and review it.
Should working capital be in the LOI?
If working capital affects price or closing, the LOI should describe the intended approach, definitions and later calculation process.
How long should exclusivity last?
It should reflect realistic financing, diligence and documentation timing without leaving either party indefinitely constrained.
Does an LOI replace a purchase agreement?
No. The definitive agreement contains detailed representations, covenants, conditions, remedies, schedules and closing mechanics.
Primary sources and further reading
Methodology reviewed 2026-09-26. Educational information only. Transaction, lending, tax, accounting and legal outcomes depend on the facts and current rules; use qualified advisers.