Letter of Intent to Buy a Business: What to Include

A Letter of Intent (LOI) is the document that moves a business acquisition from "interested" to "serious." It outlines the basic terms you and the seller are agreeing to before either side spends significant time and money on due diligence and legal documents.

An LOI isn't usually a binding contract to buy the business, but parts of it are binding, and getting it wrong can cost you leverage, money, or the deal itself.

The most important things to get right in your LOI are the purchase price structure, the exclusivity clause, and the due diligence timeline. These three terms set the framework for the entire deal.

If they're vague or missing, you'll spend the rest of the transaction trying to recover ground you should have claimed at the start.

What Is a Letter of Intent?

An LOI (also called a Term Sheet or Indication of Interest) is a written summary of the proposed deal terms between a buyer and seller. It's typically 2-5 pages and covers the major points that will eventually be detailed in the Asset Purchase Agreement.

Think of it as the outline for the deal. It answers: What are you buying? How much are you paying? What needs to happen before the deal closes?

Binding vs. Non-Binding: The Critical Distinction

Most LOIs are structured as non-binding on the purchase itself. You're not legally committed to buy the business just because you signed an LOI. The final commitment comes when you sign the purchase agreement.

However, certain provisions in the LOI are typically binding:

• Confidentiality: Both parties agree not to disclose deal terms or proprietary information shared during negotiations.
• Exclusivity (no-shop clause): The seller agrees not to negotiate with other buyers for a defined period.
• Expense allocation: Each party bears its own costs.
• Governing law: Which state's laws apply to the LOI itself.

The LOI should clearly label which provisions are binding and which are non-binding. If it doesn't, you could be in a gray area, and gray areas in legal documents always favor the side that didn't draft them.

What to Include in a Business Purchase LOI

1. Parties

Full legal names of the buyer and seller entities (or individuals). If you're forming a new LLC to acquire the business, specify that the buyer is "[Your Name] or assignee", this gives you flexibility to assign the LOI to your new entity before closing.

2. Description of the Transaction

State clearly that this is an asset purchase (or stock purchase, if applicable). List the major asset categories being acquired: equipment, inventory, intellectual property, goodwill, customer lists, etc.

3. Purchase Price and Payment Terms

• Total purchase price (or price range, if still being finalized)
• Payment structure: cash at closing, seller financing, earnout, or combination
• Earnest money deposit amount and terms
• How inventory will be valued at closing

4. Due Diligence Period

Define how long the buyer has to investigate the business. For small business deals, 30-60 days is typical. Complex deals or franchise acquisitions may need 90 days.

During this period, the seller provides access to financial records, contracts, employee information, and other documents. If the buyer discovers material issues, they can renegotiate or walk away.

5. Exclusivity Period

An exclusivity (no-shop) clause prevents the seller from soliciting or entertaining other offers while you're conducting due diligence. Without it, the seller can use your offer as leverage to get a better deal from someone else, while you're spending money on accountants and attorneys.

Match the exclusivity period to the due diligence period, plus a cushion for negotiating the final agreement (e.g., 75-90 days if due diligence is 60 days).

6. Key Conditions

List the conditions that must be met before closing:

• Satisfactory completion of due diligence
• Buyer obtaining financing
• Landlord consent to lease assignment
• Transfer of necessary licenses and permits
• Execution of a non-compete agreement
• Key employee retention (if applicable)

7. Proposed Closing Date

A target date helps keep the deal on track. Be realistic, 60-120 days from LOI signing is common, depending on financing and due diligence complexity.

8. Transition Period

Outline the seller's role after closing: training, customer introductions, consulting. Specify the duration and whether the seller will be compensated.

9. Confidentiality

Both sides agree not to disclose that discussions are happening, the deal terms, or any proprietary information exchanged during the process. This is especially important if the seller hasn't told employees, customers, or vendors that the business is for sale.

Common LOI Mistakes

1. Making the Entire LOI Binding

Always include a clear statement that the purchase terms are non-binding and subject to execution of a definitive purchase agreement.

2. Skipping Exclusivity

Without an exclusivity clause, you're investing time and money in due diligence while the seller shops your offer to other buyers. Always negotiate for exclusivity.

3. Being Too Vague on Price

"We'll agree on a fair price" is not a useful LOI term. The more specific you are about price, payment structure, and adjustments, the less room there is for misunderstandings later.

4. Too Short a Due Diligence Period

Two weeks isn't enough to properly evaluate a business. Don't let the seller pressure you into a timeline that doesn't allow thorough investigation. If the seller won't agree to reasonable due diligence, that's a red flag.

5. Not Having an Attorney Review Before Signing

Even though the LOI is mostly non-binding, the binding provisions (confidentiality, exclusivity) create real legal obligations. And the terms you agree to in the LOI set the framework for the purchase agreement, so it's harder to change course later.

At Surge Business Law, LOI review is included in our flat-fee transaction packages. If you already have an LOI in hand, or you're preparing to submit a purchase offer, a quick review before you sign can save you significant headaches down the road.

What Happens After You Sign an LOI

The LOI sets the tone for everything that follows. Getting it right makes the rest of the process smoother.

Get Legal Help With Your LOI

At Surge Business Law, LOI review is part of our flat-fee transaction service. We can also help you draft an LOI if you're making the first move. Our goal is to make sure you're protected before you invest in due diligence.

Read our step-by-step guide to buying a business, or book a free consultation to discuss your deal.