Glossary term
Letter of Intent (LOI)
A letter of intent is a preliminary document that outlines the main terms of a potential transaction before final agreements are signed.
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What Is a Letter of Intent?
A letter of intent, or LOI, is a preliminary document that outlines the main terms of a potential transaction before final agreements are signed. LOIs are common in business sales, acquisitions, financing, real estate deals, partnerships, and other negotiated transactions.
An LOI helps the parties confirm whether they are aligned enough to spend time and money on due diligence and final documents.
Key Takeaways
- A letter of intent summarizes proposed deal terms before final contracts.
- It may include price, structure, timing, due diligence, exclusivity, confidentiality, and closing conditions.
- Some parts of an LOI may be binding while others are nonbinding.
- LOIs are common in business acquisitions, financing, and real estate transactions.
- Parties should have legal counsel review the document before signing.
How a Letter of Intent Works
An LOI usually appears after initial discussions but before final legal documents. It can help the buyer and seller, lender and borrower, or other parties agree on the general framework of a deal.
The document may then guide due diligence. If the review confirms the assumptions, the parties may move toward a purchase agreement, loan agreement, lease, investment agreement, or other binding contract.
Common LOI Terms
Term | Why it matters |
|---|---|
Price or valuation | Sets the economic starting point |
Structure | Clarifies asset sale, stock sale, financing, or other deal form |
Due diligence | Gives the buyer or investor time to verify information |
Exclusivity | May limit shopping the deal to others for a period |
Confidentiality | Protects sensitive information shared during negotiations |
Binding Versus Nonbinding
Many LOIs say the main transaction terms are nonbinding until final documents are signed. But some provisions, such as confidentiality, exclusivity, expenses, governing law, or access to information, may be binding.
That distinction is why an LOI should not be treated as casual paperwork. The exact wording can affect negotiating leverage and legal obligations.
The Bottom Line
A letter of intent is a preliminary deal document that outlines major terms before final agreements. It can help organize negotiations, but the binding and nonbinding parts should be reviewed carefully before signing.