letter of intent (LOI)
Also called: LOI
A mostly non-binding document in which a buyer sets out the main terms of a planned acquisition, such as price, payment structure and timeline, before full due diligence. It is the point to involve a lawyer.
A letter of intent (LOI), in the sale of a company, is a short document in which the buyer sets out the main terms of the planned deal before the detailed checks and the final contract. It typically covers the price and how it will be paid (at closing, in installments, as an earn-out), what exactly is being bought, the founders' roles after the sale, the timeline for due diligence and closing, and an exclusivity period during which the seller agrees not to negotiate with anyone else.
Most of an LOI is non-binding: either side can still walk away. Some clauses usually are binding, such as exclusivity and confidentiality. That combination is what makes the LOI important for the seller: once it's signed, the seller has given up the chance to talk to other buyers for weeks, and every term left vague will be negotiated later, when the seller has less leverage.
So the LOI is the point to be careful, not the formality before the real contract. Get the key terms as concrete as possible (the exact earn-out metric and target, what happens if the deal is repriced after due diligence, how long exclusivity lasts), and have a lawyer who does such deals review it before signing.
Example
The buyer sends GarageDesk a two-page letter of intent: 6,000,000 UAH for 100% of the company, 4,000,000 at closing and a 2,000,000 earn-out if MRR reaches 200,000 UAH a year after closing, Nina staying 12 months and Oscar 6, closing in January. Nina wants to sign it the same night.
Instead the founders' lawyer reads it first and finds the binding parts: 90 days of exclusivity and confidentiality. Meanwhile the founders check the buyer, calling the founders of two companies it bought before, and get its promises in writing: GarageDesk stays a separate product for at least two years, and shop prices don't change in the first year. The price structure is later renegotiated to 5,000,000 at closing plus a 1,000,000 earn-out at an MRR of 190,000 UAH.
Common mistakes
- Treating the LOI as a formality. Vague terms get settled later, when you have less leverage.
- Long exclusivity. While it lasts you can't talk to other buyers; keep it as short as the checks really need.
- Signing without a lawyer. This is the cheapest moment to get advice.
- Confusing it with a customer's letter of intent. In sales to customers an LOI is a promise to buy; in a company sale it is the outline of the deal.