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A letter of intent to buy a business is a deal proposal. It names the buyer, the seller, the business, the price and the terms both sides plan to sign. Buyers and sellers of private companies use it before the final purchase agreement.
This page gives you a free printable letter of intent template builder for a business purchase, a list of what the letter covers, the steps to write it and a sample LOI.
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LOI stands for letter of intent: when you buy a business, the LOI is the buyer's written proposal of the main deal terms, sent to the seller before anyone drafts the definitive purchase agreement.
The letter shows that the buyer is serious about a privately held company. It helps both parties check that they are on the same page about the price, exclusivity, the closing date and the deal terms. They reach that point before either side spends money on due diligence and contract drafting.
A business purchase LOI goes by other names too: a business acquisition letter of intent, a letter of intent to acquire a company, or simply an intent to purchase letter. All of them describe the same document.
The LOI differs from the business purchase agreement. The LOI sets the frame of the deal. The purchase agreement is the final contract that transfers the business at closing.
Our free letter of intent template for a business purchase is an online builder: you answer questions about the buyer, the seller, the business and the price, and it writes the LOI for you.
The template follows the long form of the letter described on this page. You can save your progress, finish on any device, and download and print the letter when it is ready.
Gather these details before you start:
If the deal is for property or a single asset rather than a company, the general purchase letter of intent fits better.
A letter of intent to purchase a business includes the parties, the business, the price and how it is paid, the deal structure, due diligence, exclusivity, confidentiality, closing terms and whether the letter binds the parties.
The list below covers the usual clauses. A short LOI keeps the first few. A long LOI uses most of them.
To see how these clauses read in a finished letter, use the free template above or read the sample below.
A letter of intent to buy a business can be binding or non-binding, and the letter itself should say which, clause by clause when the parties want a mix of both.
The LOI should say plainly which of its clauses bind the parties and which do not. A letter marked non-binding usually does not oblige either side to close the deal. Its clauses marked binding, such as exclusivity or confidentiality, are meant to hold, but whether they are enforced depends on the jurisdiction whose rules govern the letter. The label is not the whole story: the letter's wording and the parties' conduct can weigh as well.
Most buyers and sellers want room to walk away while due diligence runs, so they keep the price and the deal terms open until the definitive agreement.
Whether a seller can back out of an LOI depends on the letter itself: the answer turns on which clauses the buyer and the seller marked as binding when they signed.
A letter marked non-binding usually does not oblige either side to close the deal. Its wording and how the parties act after signing can still create duties, so have an attorney read it before you rely on it. Whether a clause the parties made binding, above all a promise to negotiate in good faith, is enforced, and what a breach of it costs, depends on the jurisdiction named in the letter's governing rules clause: check that clause and ask an attorney.
In a mixed LOI, the parties keep the price and the deal terms non-binding and make chosen promises binding, such as confidentiality, exclusivity and good faith negotiation.
Write the binding effect clause in plain words, and list the binding clauses by name, so neither side reads the letter differently later.
A short LOI to acquire a business covers only the main points, such as the price and a few key terms, while a long LOI goes through the whole deal in detail.
| Point | Short LOI | Long LOI |
|---|---|---|
| What it covers | The price and the main terms | The whole deal, clause by clause |
| Speed of talks | Quicker to agree | Slower to agree |
| Open issues | Settled later, in the purchase agreement | Settled early, before the costly work starts |
| Later costs | Extra adviser costs and effort when issues surface late | Fewer surprises while drafting the purchase agreement |
| Usually preferred by | The buyer | The seller |
A long letter can also show early that a problem is too big for the deal. Both sides then stop before they lose more time and money on it.
A short letter suits a simple deal with few open questions, where both sides want to start due diligence quickly.
Buyers use an LOI to secure exclusivity and time for due diligence, while sellers use it to see the full shape of the offer before they stop talking to other buyers.
The buyer usually wants a short letter, especially when the offer gives the seller a lot. A short letter with a long exclusivity period gives the buyer time to negotiate the purchase or merger agreement in detail.
Buyers commonly run due diligence before agreeing to every key term. The parties can also agree on the key terms first and renegotiate certain clauses if due diligence turns up problems.
On a complex deal, a detailed LOI helps the buyer spend less money and management time on a transaction that might not close.
The seller usually wants the LOI as detailed as possible. When the letter has an exclusivity clause the parties made binding, the seller agrees not to talk to other buyers for the period it sets. Without one, signing the LOI does not stop the seller from talking to other buyers.
Sellers see this as a lock-up, so they want the fullest picture of the deal before they sign. A detailed LOI also makes the later talks on the purchase agreement easier.
To write a letter of intent to buy a business, name the parties and the business, set the price and the payment, decide what binds, add the deal clauses, and have both sides sign and date it.
The steps below follow the long form. Go through them in order and write each part in plain words.
Effective date and subject. Start with the date of the letter and its purpose. Say that the letter is the basis for a formal agreement between the parties.
Parties and business. Give the names of the buyer and the seller and the name of the business to be sold.
Purchase price. Write the price for the business in numbers and in words. Say whether the buyer takes full ownership of the business or another share the parties agree on.
Real estate. Next, add the location and legal description of the real estate that belongs to the business entity. Write the purchase price of the property in numbers and in words as well. If the business owns no real estate, say that the letter covers none.
Payment timing. Say when the buyer pays the price, for example a deposit at signing and the balance at closing. The payment methods can wait for the purchase agreement.
Binding effect. Say whether the letter is binding as a whole, in part or not at all (see Is a Business Purchase LOI Binding?).
Bank accounts. Say that the seller keeps the business's bank accounts open and funded until closing.
Seller's conduct. The seller agrees to act in the best interest of the business during the sale and to avoid anything that disrupts its normal operation. You can add that this clause stays in force after closing.
Closing. Describe what counts as closing. In every case, closing follows the signing of the definitive purchase agreement; the LOI only sets the target date and the conditions for it.
Closing costs. Say who pays the closing costs. The parties can split them, or the buyer can pay them all.
Termination. Add the date on which the letter ends if the buyer and the seller have not signed a formal contract by then.
Access to information. Say that once the letter is signed, the buyer and the advisers the buyer names can review information about the company, and that the buyer keeps it confidential.
Conditions. List the conditions of the deal, for example that the buyer approves the materials the seller provides during due diligence and that the parties sign a formal agreement within the period they set.
Confidentiality. Say that the deal details are confidential and that only a limited circle of people can see them, unless the owner consents to more.
Good faith negotiations. The parties agree to negotiate in good faith and to act truthfully and diligently during the sale.
Exclusivity. The seller agrees not to negotiate with any other buyer during the exclusivity period. Name any existing contracts the clause does not touch.
Currency and governing rules. Name the currency of the deal and the jurisdiction whose rules govern the letter.
Severability. Add a clause saying that if any provision in the letter is invalid, the other provisions stay in place.
Counterparts and electronic delivery. Say that the parties can sign several copies of the letter with the same effect, and what counts as delivery of the letter, including by email.
Signatures. End the letter with the signatures of the buyer and the seller, the date of signing and their printed names.
Our online builder asks about each of these parts in turn and puts your answers into a finished letter you can edit before signing.
This business purchase LOI sample shows a short, non-binding letter for the purchase of a small company, with made-up names, addresses and amounts to replace with the details of your own deal.
From: Ginger Bread
345 Gartner Ave.
Austin, TX 78723
April 4, 2021
To: Sonya Cap
53 Greenview Drive
Calliham, TX 78007
Re: Intent to Purchase a Business Entity
This letter of intent to purchase business represents basic terms agreed upon by Buyer and Seller:
Buyer: Ginger Bread Dated: 04/04/2021
Seller: Sonya Cap Dated:
Change each clause to fit your deal, and add the long-form clauses from the steps above, such as exclusivity and confidentiality, where you need them.
You can draft a letter of intent yourself with the template. Ask an attorney to review it before you sign, especially when the letter has binding clauses or the price is large.
Our builder creates the letter online, and you can download and print it when it is ready. You can also copy the sample above into any word processor and edit it there.
The buyer usually sends the letter of intent to the seller. The seller can reply with changes, and both sides sign once they agree on the terms.
The non-binding terms of a letter of intent end on the date in its termination clause, or when the parties sign the definitive agreement, whichever comes first. Clauses the letter says survive, often confidentiality, keep their effect for the period the letter sets. Set both periods in the letter so each side knows them.
The deal structure tells whether the buyer takes the shares of the company or only its assets. A share deal follows the pattern of a stock purchase agreement. An asset deal follows the pattern of an asset purchase agreement. The LOI sets this structure early, so both sides plan the next steps in the same way.
After the LOI, the buyer runs due diligence and the parties work toward a definitive agreement, which is the final purchase contract. The LOI sets the main terms of that contract and gives both sides a clear starting point. A buyer who also needs a plan for the company after the sale can build a business plan in the meantime.
General information, not legal or tax advice.
