Letter of Intent to Buy a Business: Example, Key Terms & How to Write One

A letter of intent (LOI) for a business acquisition outlines the principal terms the buyer and seller expect to use as the basis for due diligence and negotiation of a definitive purchase agreement.

An LOI is not simply a ceremonial step between making an offer and conducting due diligence.

For a small-business buyer, it can define the proposed purchase price and structure, what is being acquired, how the purchase will be financed, the period of exclusivity, access to information, major closing conditions, and other assumptions that determine whether the transaction is worth pursuing.

At the same time, an LOI usually is not intended to serve as the final acquisition agreement.

The American Bar Association describes an LOI as a document that summarizes major deal points and establishes how negotiations and due diligence will proceed. ABA materials also emphasize that LOIs commonly contain a combination of binding and non-binding provisions rather than being entirely one or the other. See the ABA’s overview of key stages in an M&A transaction.

Because enforceability depends on the language, circumstances, and applicable law, buyers and sellers should have transaction counsel review an LOI before signing it.

What Is a Letter of Intent in a Business Acquisition?

A letter of intent is a preliminary transaction document used to record the major terms on which a buyer proposes to acquire a business.

An LOI commonly appears after enough preliminary information has been exchanged for the buyer to make a serious proposal, but before the buyer completes detailed due diligence and before the parties negotiate the definitive purchase agreement.

The document may address:

• purchase price;
• transaction structure;
• cash paid at closing;
• seller financing;
• earnouts or contingent payments;
• rollover equity;
• working capital;
• assumed and excluded liabilities;
• due diligence;
• access to information;
• financing;
• exclusivity;
• confidentiality;
• required consents;
• seller transition;
• expected closing timing;
• expenses; and
• which provisions are intended to be binding.

For buyers still evaluating whether they know enough to submit an LOI, DueDilio’s Pre-LOI Due Diligence Checklist provides a separate early-stage framework.

Is a Letter of Intent Binding?

There is no safe universal answer.

Many acquisition LOIs are drafted so that the principal transaction terms are non-binding, while selected provisions are intended to create binding obligations.

For example, parties may intend provisions involving:

• confidentiality;
• exclusivity or a no-shop period;
• access to information;
• expenses;
• governing law; or
• termination mechanics

to have legal effect even though neither party is yet obligated to complete the acquisition.

ABA materials note that an LOI can combine binding and non-binding provisions and that the document should clearly identify which provisions are intended to have legal effect. For additional discussion, see the ABA’s discussion of agreements to agree and letters of intent.

The document’s title alone does not determine enforceability.

The wording of the LOI, the parties’ conduct, the governing jurisdiction, and the facts surrounding the negotiations can all matter.

For a deeper discussion, see Is an LOI Binding or Non-Binding?

Why Buyers and Sellers Use an LOI

A well-structured LOI can help the parties answer the important commercial questions before they invest heavily in diligence and definitive documentation.

Align on the Basic Economics

The parties can determine whether they broadly agree on:

• valuation;
• form of consideration;
• seller financing;
• earnout concepts;
• working-capital treatment; and
• other major economic terms.

Define What Is Actually Being Purchased

An LOI should make clear whether the proposed transaction is an:

• asset purchase;
• stock purchase;
• membership-interest purchase; or
• another structure.

That distinction can affect which assets, liabilities, contracts, employees, and approvals become relevant later.

Establish the Diligence Framework

The LOI can define:

• when detailed diligence begins;
• what information the buyer expects to receive;
• how long exclusivity lasts; and
• what conditions must be satisfied before the buyer proceeds.

ABA M&A guidance notes that LOIs can address the scope of information available to the buyer during diligence.

Give the Buyer Negotiating Exclusivity

A buyer may be reluctant to spend significant time and professional fees while the seller is simultaneously negotiating with competing buyers.

An exclusivity or no-shop provision can address that issue if the parties agree to it and counsel drafts it appropriately.

Identify Difficult Issues Earlier

The LOI stage can expose disagreement over issues such as:

• price structure;
• seller financing;
• working capital;
• real estate;
• seller employment;
• restrictive covenants;
• earnouts;
• contract transfer; or
• financing conditions

before the parties incur the cost of negotiating a full purchase agreement.

What Should Be in a Business Acquisition LOI?

There is no single required format. The appropriate document depends on the transaction.

For many SMB acquisitions, the following sections deserve consideration.

1. Parties and Target Business

Identify:

• the buyer;
• the seller;
• the legal entity or business being acquired; and
• where relevant, the entities through which the transaction will occur.

Make sure the correct legal parties are named.

2. Proposed Transaction Structure

State whether the proposal contemplates an asset acquisition, equity acquisition, or another structure.

For an asset transaction, identify at a high level what the buyer expects to acquire and what liabilities it expects to assume or exclude.

Avoid trying to convert the LOI into a full asset-purchase agreement. Detailed schedules normally follow later.

DueDilio also maintains separate starting resources for an Asset Purchase LOI and Stock Purchase LOI.

3. Purchase Price

State the proposed purchase price or the agreed methodology for determining it.

Buyers should also consider what assumptions support that number.

For example:

• Is price based on a stated EBITDA or SDE figure?
• Does it assume a particular level of working capital?
• Is inventory included?
• Is cash retained by the seller?
• Is debt paid off at closing?
• Does the proposal depend on satisfactory diligence?

ABA guidance cautions that the purchase price in an LOI may need to remain subject to diligence rather than becoming an unintended fixed commitment.

4. Form of Consideration

Explain how the buyer proposes to pay the purchase price.

Potential components include:

• cash at closing;
• acquisition financing;
• seller note;
• earnout;
• holdback;
• rollover equity; or
• other contingent consideration.

The LOI does not necessarily need every definitive-document detail, but material economic concepts should be clear enough that both sides understand the proposed deal.

5. Working Capital and Other Purchase-Price Adjustments

Working capital is one of the areas buyers sometimes leave too vague at the LOI stage.

If working capital will affect the final purchase price, the LOI can identify the basic concept without attempting to complete the final calculation.

Depending on the business, the parties may need to consider:

• accounts receivable;
• inventory;
• accounts payable;
• accrued operating liabilities;
• customer deposits;
• seasonality; and
• what constitutes normal working capital.

The detailed definition and adjustment mechanism normally belong in the definitive agreement.

6. Due Diligence

Describe the buyer’s right to investigate the business and receive appropriate information.

The LOI may address:

• financial diligence;
• legal diligence;
• tax;
• operations;
• customers;
• technology;
• employees;
• insurance;
• environmental matters; or
• other workstreams relevant to the transaction.

Avoid assuming that every deal needs the same fixed diligence period.

The right period depends on the business, financing, seller preparedness, scope, and transaction complexity.

For the process after an LOI is signed, see DueDilio’s M&A Due Diligence Guide.

7. Financing

If the acquisition depends on outside financing, the LOI should accurately reflect that fact.

Possible considerations include:

• whether the offer is financing-contingent;
• anticipated lender process;
• seller financing;
• investor capital;
• collateral issues; and
• whether financing could affect timing or structure.

Do not state that financing is committed when it is not.

8. Exclusivity

An exclusivity provision generally restricts the seller from pursuing competing transactions during an agreed period.

The parties may need to address:

• when exclusivity begins;
• when it ends;
• what activity is prohibited;
• what happens if the LOI terminates; and
• whether the period can be extended.

Because exclusivity can be intended as a binding obligation, it should be drafted carefully.

9. Confidentiality and Information Access

If an NDA already exists, the LOI should be coordinated with it rather than casually creating inconsistent confidentiality obligations.

The parties may also address access to:

• financial records;
• contracts;
• employees;
• customers;
• facilities;
• systems; and
• other diligence materials.

Access may need to be staged to protect particularly sensitive information.

10. Conditions to the Proposed Transaction

An LOI can identify major conditions that must be satisfied before closing.

Examples can include:

• satisfactory completion of diligence;
• financing;
• negotiation and execution of definitive agreements;
• required third-party consents;
• landlord approval;
• regulatory approval where applicable;
• agreement on seller transition; or
• retention of specified employees.

Not every possible closing condition belongs in the LOI.

Focus on issues important enough that failure to resolve them could change the transaction.

11. Seller Transition and Post-Closing Relationships

Some SMB acquisitions depend heavily on the seller.

If seller involvement is important, the LOI may outline expectations around:

• transition assistance;
• employment;
• consulting;
• rollover ownership;
• real estate;
• customer introductions; or
• other post-closing relationships.

Detailed terms can be negotiated later, but material expectations should not remain hidden until the purchase agreement is nearly complete.

12. Restrictive Covenants

Transactions sometimes contemplate non-compete, non-solicitation, confidentiality, or similar restrictions.

These provisions involve important legal and state-specific considerations.

The LOI can identify the commercial concept, but counsel should determine whether and how the restrictions should be drafted.

13. Timing and Expiration

Instead of assuming every LOI should last 30, 45, 60, or 90 days, set a timeline that reflects the actual deal.

Consider:

• diligence scope;
• lender process;
• third-party approvals;
• document preparation;
• seller responsiveness; and
• expected closing date.

The LOI should also explain how and when it expires or can be terminated.

14. Binding and Non-Binding Provisions

This section deserves explicit attention.

The LOI should clearly identify which provisions the parties intend to be binding and which remain subject to further negotiation and execution of a definitive agreement.

Do not rely on the word “non-binding” at the top of the document as the only protection.

Letter of Intent Example for Buying a Business

The following example is designed to illustrate the structure and business issues commonly addressed in an SMB acquisition LOI.

It is not a substitute for transaction-specific legal advice or a lawyer-drafted document.

LETTER OF INTENT

Date: [Date]

Buyer: [Buyer Legal Name]

Seller: [Seller Legal Name]

Target: [Target Business Name]

1. Proposed Transaction

Buyer proposes to acquire substantially all of the assets used in the operation of [Target Business], subject to the completion of due diligence and negotiation of mutually acceptable definitive agreements.

The final assets acquired, liabilities assumed, and excluded assets and liabilities will be specified in the definitive purchase agreement.

2. Proposed Purchase Price

The proposed purchase price is $[Amount], subject to adjustment as described below and satisfactory completion of due diligence.

3. Form of Consideration

The proposed purchase price would be paid as follows:

• $[Amount] cash at closing;
• $[Amount] seller financing, if applicable;
• [description of earnout, rollover equity, or other consideration, if applicable].

Final payment terms will be documented in the definitive agreements.

4. Working Capital

The transaction is expected to include a normalized level of working capital sufficient to operate the business in the ordinary course.

The parties will negotiate the working-capital definition, target, calculation methodology, and any closing adjustment in the definitive agreement.

5. Due Diligence

Following execution of this LOI, Seller will provide Buyer and its advisors reasonable access to information necessary to evaluate the proposed transaction.

Buyer’s review may include financial, legal, tax, operational, customer, employee, technology, insurance, and other matters relevant to the business.

Buyer’s decision to proceed remains subject to satisfactory completion of due diligence.

6. Financing

The transaction is expected to be financed through [cash / lender financing / SBA financing / seller financing / investor capital / combination].

Where financing has not yet been finally approved, completion of the transaction remains subject to Buyer’s ability to obtain financing acceptable to Buyer.

7. Exclusivity

For the period beginning on execution of this LOI and ending on [date/event], Seller will not [insert attorney-approved exclusivity terms].

8. Confidentiality

The parties’ existing confidentiality agreement dated [date], if any, will remain in effect.

Any additional confidentiality obligations should be reviewed and documented by counsel.

9. Seller Transition

The parties anticipate that Seller will provide transition assistance for approximately [period or scope], with final terms to be documented in a separate agreement or the definitive purchase agreement.

10. Conditions

The proposed transaction remains subject to matters including:

• satisfactory due diligence;
• agreement on definitive transaction documents;
• financing, if applicable;
• necessary third-party consents; and
• other transaction-specific conditions agreed by the parties.

11. Timing

The parties currently anticipate completing due diligence by approximately [date] and targeting a closing around [date], subject to diligence, financing, documentation, approvals, and other transaction requirements.

12. Expenses

Each party will bear its own professional and transaction expenses except as otherwise expressly agreed in a binding provision.

13. Binding and Non-Binding Effect

Except for provisions specifically identified by legal counsel as binding, the transaction terms described in this LOI are intended only as a basis for further negotiation and do not obligate either party to complete the acquisition.

No acquisition will occur unless the parties execute definitive agreements.

[Counsel should customize this section and identify the exact provisions intended to be legally binding.]

14. Acceptance

If the foregoing accurately reflects the parties’ current understanding, please acknowledge acceptance below.

[Buyer signature]

[Seller signature]

Why the Example Should Be Customized

A generic LOI can become misleading quickly because the issues change with the deal.

For example, one July 2026 DueDilio legal-services request involved a first-time buyer pursuing an approximately $2.7 million SBA-financed asset acquisition. The buyer was still at the LOI stage and wanted legal support from LOI through closing.

The contemplated transaction raised several issues that could affect both the LOI and the later definitive documents, including:

• potential seller financing;
• a possible earnout;
• assignment of customer contracts and leases;
• a real estate lease with a purchase option;
• seller and employee transition arrangements; and
• acquisition financing.

The buyer also identified inconsistencies among the transaction materials and wanted to validate SDE, add-backs, and other financial assumptions before moving further into the transaction.

This is one anonymized DueDilio project example, not a representative sample of all acquisitions. It illustrates why a useful LOI should capture the deal’s material assumptions and unresolved dependencies, rather than relying on a generic one-page template.

Common LOI Mistakes

Treating the LOI as Automatically Non-Binding

An LOI’s legal effect depends on its drafting and circumstances.

Clearly separate provisions intended to be binding from those that remain preliminary.

Focusing Only on Purchase Price

Two offers with the same headline price can have very different economics because of:

• seller financing;
• earnouts;
• working capital;
• assumed liabilities;
• rollover equity; or
• other terms.

Being Vague About Transaction Structure

“Purchase the business” is often not enough.

Specify whether the proposal is for assets or equity and identify important assumptions.

Ignoring Working Capital

A buyer can agree to the headline valuation and later discover that the parties have very different expectations about the operating assets delivered at closing.

Promising a Timeline Before Understanding the Work

Diligence, financing, third-party consents, and documentation can all affect timing.

Use dates that fit the transaction rather than copying a generic template.

Using an Exclusivity Clause Without Understanding It

Exclusivity can materially affect both parties’ negotiating position and may be intended to be binding.

Have counsel draft or review it.

Leaving Financing Assumptions Unclear

If the acquisition depends on lender approval or other capital, the LOI should not imply that financing is unconditional when it is not.

Over-Negotiating the Definitive Agreement Inside the LOI

The LOI should settle the major commercial framework without trying to anticipate every representation, warranty, indemnity, covenant, and closing mechanic.

ABA guidance notes that an LOI should not become a miniature purchase agreement.

Should You Use an LOI Template?

A template can be useful for:

• identifying issues;
• organizing a first draft;
• understanding common sections; and
• preparing for a conversation with counsel.

It should not be treated as a plug-and-play legal document.

Even transactions with similar purchase prices can differ materially in:

• structure;
• financing;
• tax considerations;
• working capital;
• contracts;
• real estate;
• employees;
• licensing;
• seller transition; and
• state law.

DueDilio maintains separate starting templates for asset purchases and stock purchases.

When Should an Attorney Review the LOI?

For an acquisition, legal review before signing is generally the safer approach.

That is particularly important when the LOI addresses:

• exclusivity;
• confidentiality;
• deposits;
• breakup fees;
• restrictive covenants;
• seller financing;
• earnouts;
• equity rollover;
• real estate;
• unusual termination provisions;
• complex financing; or
• other potentially binding obligations.

Legal advice also helps prevent a business term from creating consequences the buyer or seller did not intend.

What Happens After the LOI Is Signed?

The transaction commonly moves into detailed diligence and definitive-document negotiation.

The buyer may begin:

• financial diligence;
• legal diligence;
• tax review;
• operational diligence;
• technology diligence;
• customer or commercial diligence;
• lender underwriting; and
• other workstreams.

Material findings may lead the parties to:

• confirm the original deal;
• request additional information;
• change transaction structure;
• modify price or payment terms;
• change closing conditions; or
• stop the transaction.

An LOI is therefore not the end of negotiation.

It is the framework for the next phase.

Bottom Line

A strong business-acquisition LOI does not need to resolve every issue in the transaction.

It should resolve enough of the important issues that the buyer and seller know what deal they are spending time and money trying to complete.

That usually means being clear about:

• what is being acquired;
• price and payment structure;
• material assumptions;
• diligence;
• financing;
• working capital;
• exclusivity;
• timing;
• important closing dependencies; and
• which provisions are intended to be binding.

The sample above can help buyers understand the structure, but transaction counsel should tailor the actual LOI to the deal.

If you need legal or other M&A support, you can browse DueDilio’s network of vetted service providers.