Letter of intent (LOI): a guide for sellers

Two offers for the same business. One proposes $10 million. The other, $9 million.

The second is more favourable to the seller. How? Structure makes all the difference.

What a letter of intent is

The letter of intent — or LOI — is the first formal offer a buyer puts in front of the seller.

It arrives after the buyer has reviewed the confidential information memorandum, met the owner, and decided they want to move forward.

It isn’t a sale agreement. It’s a document that puts the broad strokes of the proposed transaction in writing: the price, the structure, the conditions, and the timeline.

Most LOIs are non-binding — except for two elements that usually are:

• Exclusivity: the seller agrees not to negotiate with other buyers for a defined period
• Confidentiality: both sides agree to keep the discussions private

In plain English: the buyer is saying “here’s what I’m proposing, seriously — give me the time to verify the file.”

It’s a normal step in the process of selling a business in Quebec — a step where every word counts for an SME owner with revenue above $3 million.

The key elements of a LOI

Every LOI is different, but most cover these seven elements. Each one has a direct impact on what the seller receives — and when.

1. The proposed price

It’s the number that catches the eye — but it’s only the starting point. The headline price tells you nothing until you know how it’s structured.

2. The transaction structure

Share sale or asset sale? All cash, or with a vendor take-back and an earn-out?

Structure changes everything: the tax the seller pays, the residual risk after closing, and the amount actually pocketed on signing day.

3. Conditions

What the buyer requires before they fully commit:

• secure bank financing
• complete due diligence to their satisfaction
• obtain the necessary approvals (shareholders, regulators, landlord)

Each condition is a potential exit point for the buyer. Financing is the most common one — if the buyer doesn’t get their loan, the deal falls apart, regardless of the price agreed.

4. The exclusivity period

The length of time during which the seller can’t entertain other offers — typically 60 to 90 days.

It’s the most binding clause for the seller. Too long, and you’re locked in with a single buyer with no alternative.

5. The timeline

The planned schedule: start of due diligence, end of due diligence, target closing date.

A realistic timeline is a good signal. A vague or unrealistic timeline is a yellow flag — the buyer may not have measured the complexity of the file.

6. The seller’s transition

The LOI often spells out what’s expected from the seller after closing: a transition period, a consulting role, a duration.

It matters — because it’s part of what the seller “gives” in the transaction, in time and commitment.

7. The non-competition clause

The buyer wants to make sure the seller won’t go open a competing business — that’s the purpose of the non-compete clause.

Duration, territory, and scope — everything is negotiable. But the clause itself is standard in virtually every Quebec SME transaction.

What’s negotiable

Almost everything in a LOI is negotiable. The trap is to negotiate only the price.

Price is a beginning, not an end

In a competitive process with multiple buyers, the price can move up. But even in a single-buyer negotiation, the opening price is rarely the final price.

Structure changes the game

Let’s take an example.

Suppose your business receives two offers:

LOI B delivers more cash up front ($9 million vs $6.5 million), no vendor take-back to carry for 5 years, and no conditional earn-out.

The headline price is $1 million lower. But the seller receives more, faster, with less risk.

The same logic applies to any LOI. Before judging an offer, break it down: how much in cash at closing? How much in VTB to carry?

Is there a conditional earn-out? What’s the residual risk?

Exclusivity is negotiable too

A 60-day exclusivity is reasonable. 90 days is long — especially if the conditions are many.

The longer the exclusivity, the more leverage the seller loses.

For your specific situation, talk to your lawyer — every LOI has its particulars.

Common mistakes on the seller’s side

Accepting too quickly

The first LOI isn’t always the best — especially in a competitive process. Taking the time to analyze the full offer is a discipline, not a slight.

Not reading the conditions

The price can be excellent. But if the conditions give the buyer five exit doors, the path to closing is paved with uncertainty.

Ignoring structure

Focusing only on the headline price without examining the cash / VTB / earn-out split is looking at the wrapping without opening the box.

Not involving your broker and lawyer

The LOI is a strategic document. Reading it alone means walking into a negotiation without the people who know what each clause implies for the rest of the process.

LOI signed — what next?

Signing the LOI opens due diligence.

For 4 to 8 weeks, often, the buyer will examine the full file in detail — financial, tax, legal, operational, HR.

The LOI sets the framework of the transaction. The share purchase agreement — the final document, drafted by the lawyers — sets the binding terms and locks the parties in.

Between the two: negotiation, documentation, and coordination.

It’s a demanding process — but a seller well-supported by a business broker specialized in business sales in Quebec, engaged exclusively by the seller, gets through it calmly.

If you’re in the early stages of thinking about a sale, a confidential valuation helps you understand where your file stands before you ever receive a first offer.