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What Does a Letter of Intent Actually Mean?

A buyer has submitted an LOI. Here's what that means — and what it doesn't.

If a buyer tells you they want to submit a Letter of Intent, that's a good sign. It means the process has moved from 'we're interested' to 'here's what we're actually proposing.'

But an LOI isn't a done deal. Here's what it actually is.

An LOI Is a Framework, Not a Contract

The Letter of Intent lays out the key terms of a proposed transaction: price range, structure, timing, and major conditions. It's non-binding and means neither party is legally committed to close.

Think of it like a handshake on the broad strokes. You're both agreeing to work toward a deal on these general terms while more detailed documentation gets developed.

What an LOI Typically Covers

  • The proposed purchase price or range
  • Transaction structure: asset sale vs. stock sale (more on that in a

future post)

  • The due diligence period and timeline
  • An exclusivity clause, typically 30--60 days where you agree not to

talk to other buyers

  • Any earnouts or seller financing provisions
  • A target closing date

What an LOI Doesn't Cover

The full purchase agreement, representations and warranties, indemnification provisions, and all the legal details. That's all to be determined after due diligence.

**Signing an LOI commits you to work toward a deal in good faith**. It doesn't commit you to close.

Should You Have an Attorney Review It?

Yes. Even though an LOI is non-binding, the terms it sets create real momentum. Practically speaking, it's hard to renegotiate meaningfully after both parties have signed.

Pay particular attention to the exclusivity clause. It's the provision that stops you from running a parallel process, which is leverage you give up the moment you sign.

Price vs. Proceeds

One thing worth understanding before you sign: the price in an LOI is the purchase price. Your actual net proceeds depend on transaction structure, taxes (capital gains vs. ordinary income), broker commissions, attorney fees, and any working capital adjustments at close.

It's key to understand the difference between price and proceeds.

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